G.R. No.
166714 February 9, 2007 Martin Papio paid the rentals from May 1, 1982 to May 1, 1984, and thereafter, for
AMELIA S. ROBERTS, Petitioner,
vs.
MARTIN B. PAPIO, Respondent.
DECISION
CALLEJO, SR., J.:
Assailed in this petition for review on certiorari is the Decision 1 of the Court of
Appeals (CA), in CA-G.R. CV No. 69034 which reversed and set aside the Decision 2 of
the Regional Trial Court (RTC), Branch 150, Makati City, in Civil Case No. 01-431. The
RTC ruling had affirmed with modification the Decision3 of the Metropolitan Trial
Court (MeTC), Branch 64, Makati City in Civil Case No. 66847. The petition likewise
assails the Resolution of the CA denying the motion for reconsideration of its
decision.
The Antecedents
The spouses Martin and Lucina Papio were the owners of a 274-square-meter
residential lot located in Makati (now Makati City) and covered by Transfer Certificate
of Title (TCT) No. S-44980.4 In order to secure a 59,000.00 loan from the Amparo
Investments Corporation, they executed a real estate mortgage on the property.
Upon Papios failure to pay the loan, the corporation filed a petition for the
extrajudicial foreclosure of the mortgage.
Since the couple needed money to redeem the property and to prevent the
foreclosure of the real estate mortgage, they executed a Deed of Absolute Sale over
the property on April 13, 1982 in favor of Martin Papios cousin, Amelia Roberts. Of
the 85,000.00 purchase price, 59,000.00 was paid to the Amparo Investments
Corporation, while the 26,000.00 difference was retained by the spouses.5 As soon
as the spouses had settled their obligation, the corporation returned the owners
duplicate of TCT No. S-44980, which was then delivered to Amelia Roberts.
Thereafter, the parties (Amelia Roberts as lessor and Martin Papio as lessee)
executed a two-year contract of lease dated April 15, 1982, effective May 1, 1982.
The contract was subject to renewal or extension for a like period at the option of the
lessor, the lessee waiving thereby the benefits of an implied new lease. The lessee
was obliged to pay monthly rentals of 800.00 to be deposited in the lessors account
at the Bank of America, Makati City branch.6
On July 6, 1982, TCT No. S-44980 was cancelled, and TCT No. 114478 was issued in
the name of Amelia Roberts as owner.7
another year.8 He then failed to pay rentals, but he and his family nevertheless
remained in possession of the property for a period of almost thirteen (13) years.
In a letter dated June 3, 1998, Amelia Roberts, through counsel, reminded Papio that
he failed to pay the monthly rental of 2,500.00 from January 1, 1986 to December
31, 1997, and 10,000.00 from January 1, 1998 to May 31, 1998; thus, his total
liability was 410,000.00. She demanded that Papio vacate the property within 15
days from receipt of the letter in case he failed to settle the amount. 9 Because he
refused to pay, Papio received another letter from Roberts on April 22, 1999,
demanding, for the last time, that he and his family vacate the property.10 Again,
Papio refused to leave the premises.
On June 28, 1999, Amelia Roberts, through her attorney-in-fact, Matilde Aguilar, filed
a Complaint11 for unlawful detainer and damages against Martin Papio before the
MeTC, Branch 64, Makati City. She alleged the following in her complaint:
Sometime in 1982 she purchased from defendant a 274-sq-m residential house and
lot situated at No. 1046 Teresa St., Brgy. Valenzuela, Makati City.12 Upon Papios
pleas to continue staying in the property, they executed a two-year lease contract13
which commenced on May 1, 1982. The monthly rental was 800.00. Thereafter, TCT
No. 11447814 was issued in her favor and she paid all the realty taxes due on the
property. When the term of the lease expired, she still allowed Papio and his family to
continue leasing the property. However, he took advantage of her absence and
stopped payment beginning January 1986, and refused to pay despite repeated
demands. In June 1998, she sent a demand letter 15 through counsel requiring Papio
to pay rentals from January 1986 up to May 1998 and to vacate the leased property.
The accumulated arrears in rental are as follows: (a) 360,000.00 from January 1,
1986 to December 31, 1997 at 2,500.00 per month; and (b) 50,000.00, from
January 1, 1998 to May 31, 1998 at 10,000.00 per month.16 She came to the
Philippines but all efforts at an amicable settlement proved futile. Thus, in April 1999,
she sent the final demand letter to defendant directing him and his family to pay and
immediately vacate the leased premises.17
Roberts appended to her complaint copies of the April 13, 1982 Deed of Absolute
Sale, the April 15, 1982 Contract of Lease, and TCT No. 114478.
In his Answer with counterclaim, Papio alleged the following:
He executed the April 13, 1982 deed of absolute sale and the contract of lease.
Roberts, his cousin who is a resident of California, United States of America (USA),
arrived in the Philippines and offered to redeem the property. Believing that she had
made the offer for the purpose of retaining his ownership over the property, he
accepted. She then remitted 59,000.00 to the mortgagor for his account, after
which the mortgagee cancelled the real estate mortgage. However, he was alarmed
when the plaintiff had a deed of absolute sale over the property prepared (for
83,000.00 as consideration) and asked him to sign the same. She also demanded
that the defendant turn over the owners duplicate of TCT No. S-44980. The
defendant was in a quandary. He then believed that if he signed the deed of absolute
sale, Roberts would acquire ownership over the property. He asked her to allow him
to redeem or reacquire the property at any time for a reasonable amount. 18 When
Roberts agreed, Papio signed the deed of absolute sale.
Pursuant to the right to redeem/repurchase given him by Roberts, Papio purchased
the property for 250,000.00. In July 1985, since Roberts was by then already in the
USA, he remitted to her authorized representative, Perlita Ventura, the amount of
150,000.00 as partial payment for the property.19 On June 16, 1986, she again
remitted 100,000.00, through Ventura. Both payments were evidenced by receipts
signed by Ventura.20 Roberts then declared that she would execute a deed of
absolute sale and surrender the title to the property. However, Ventura had
apparently misappropriated 39,000.00 out of the 250,000.00 that she had
received; Roberts then demanded that she pay the amount misappropriated before
executing the deed of absolute sale. Thus, the sole reason why Roberts refused to
abide by her promise was the failure of her authorized representative to remit the full
amount of 250,000.00. Despite Papios demands, Roberts refused to execute a deed
of absolute sale. Accordingly, defendant posited that plaintiff had no cause of action
to demand payment of rental and eject him from the property.
Papio appended to his Answer the following: (1) the letter dated July 18, 1986 of
Perlita Ventura to the plaintiff wherein the former admitted having used the money of
the plaintiff to defray the plane fares of Perlitas parents to the USA, and pleaded that
she be allowed to repay the amount within one year; (b) the letter of Eugene Roberts
(plaintiffs husband) to Perlita Ventura dated July 25, 1986 where he accused Ventura
of stealing the money of plaintiff Amelia (thus preventing the latter from paying her
loan on her house and effect the cancellation of the mortgage), and demanded that
she deposit the balance;21 and (c) plaintiffs letter to defendant Papio dated July 25,
1986 requesting the latter to convince Ventura to remit the balance of 39,000.00 so
that the plaintiff could transfer the title of the property to the defendant.22
Papio asserted that the letters of Roberts and her husband are in themselves
admissions or declarations against interest, hence, admissible to prove that he had
reacquired the property although the title was still in her possession.
In her Affidavit and Position Paper,23 Roberts averred that she had paid the real
estate taxes on the property after she had purchased it; Papios initial right to occupy
the property was terminated when the original lease period expired; and his
continued possession was only by mere tolerance. She further alleged that the Deed
of Sale states on its face that the conveyance of the property was absolute and
unconditional. She also claimed that any right to repurchase the property must
appear in a public document pursuant to Article 1358, Paragraph 1, of the Civil Code
of the Phililppines.24 Since no such document exists, defendants supposed real
interest over the property could not be enforced without violating the Statute of
Frauds.25 She stressed that her Torrens title to the property was an "absolute and
indefeasible evidence of her ownership of the property which is binding and
conclusive upon the whole world."
Roberts admitted that she demanded 39,000.00 from the defendant in her letter
dated July 25, 1986. However, she averred that the amount represented his back
rentals on the property.26 She declared that she neither authorized Ventura to sell the
property nor to receive the purchase price therefor. She merely authorized her to
receive the rentals from defendant and to deposit them in her account. She did not
know that Ventura had received 250,000.00 from Papio in July 1985 and on June
16, 1986, and had signed receipts therefor. It was only on February 11, 1998 that
she became aware of the receipts when she received defendant Papios letter to
which were appended the said receipts. She and her husband offered to sell the
property to the defendant in 1984 for US$15,000.00 on a "take it or leave it" basis
when they arrived in the Philippines in May 1984.27 However, defendant refused to
accept the offer. The spouses then offered to sell the property anew on December
20, 1997, for 670,000.00 inclusive of back rentals.28 However, defendant offered to
settle his account with the spouses.29 Again, the offer came on January 11, 1998, but
it was rejected. The defendant insisted that he had already purchased the property in
July 1985 for 250,000.00.
Roberts insisted that Papios claim of the right to repurchase the property, as well as
his claim of payment therefor, is belied by his own letter in which he offered to settle
plaintiffs claim for back rentals. Even assuming that the purchase price of the
property had been paid through Ventura, Papio did not adduce any proof to show
that Ventura had been authorized to sell the property or to accept any payment
thereon. Any payment to Ventura could have no binding effect on her since she was
not privy to the transaction; if at all, such agreement would be binding only on Papio
and Ventura.
She further alleged that defendants own inaction belies his claim of ownership over
the property: first, he failed to cause any notice or annotation to be made on the
Register of Deeds copy of TCT No. 114478 in order to protect his supposed adverse
claim; second, he did not institute any action against Roberts to compel the execution
of the necessary deed of transfer of title in his favor; and third, the defense of
ownership over the property was raised only after Roberts demanded him to vacate
the property.
Based solely on the parties pleadings, the MeTC rendered its January 18, 2001
Decision30 in favor of Roberts. The fallo of the decision reads:
WHEREFORE, premises considered, finding this case for the plaintiff, the defendant is
hereby ordered to:
1. Vacate the leased premises known as 1046 Teresa St., Valenzuela, Makati City;
2. Pay plaintiff the reasonable rentals accrual for the period January 1, 1996 to
December 13, 1997 at the rate equivalent to Php2,500.00 per month and thereafter,
Php10,000.00 from January 1998 until he actually vacates the premises;
3. Pay the plaintiff attorneys fees as Php20,000.00; and
4. Pay the costs
SO ORDERED.31
The MeTC held that Roberts merely tolerated the stay of Papio in the property after
the expiration of the contract of lease on May 1, 1984; hence, she had a cause of
action against him since the only elements in an unlawful detainer action are the fact
of lease and the expiration of its term. The defendant as tenant cannot controvert the
title of the plaintiff or assert any right adverse thereto or set up any inconsistent right
to change the existing relation between them. The plaintiff need not prove her
ownership over the property inasmuch as evidence of ownership can be admitted
only for the purpose of determining the character and extent of possession, and the
amount of damages arising from the detention.
The court further ruled that Papio made no denials as to the existence and
authenticity of Roberts title to the property. It declared that "the certificate of title is
indefeasible in favor of the person whose name appears therein and incontrovertible
upon the expiration of the one-year period from the date of issue," and that a
Torrens title, "which enjoys a strong presumption of regularity and validity, is
generally a conclusive evidence of ownership of the land referred to therein."
As to Papios claim that the transfer of the property was one with right of repurchase,
the MeTC held it to be bereft of merit since the Deed of Sale is termed as "absolute
and unconditional." The court ruled that the right to repurchase is not a right granted
to the seller by the buyer in a subsequent instrument but rather, a right reserved in
the same contract of sale. Once the deed of absolute sale is executed, the seller can
no longer reserve the right to repurchase; any right thereafter granted in a separate
document cannot be a right of repurchase but some other right.
As to the receipts of payment signed by Ventura, the court gave credence to
Robertss declaration in her Affidavit that she authorized Ventura only to collect
rentals from Papio, and not to receive the repurchase price. Papios letter of January
31, 1998, which called her attention to the fact that she had been sending people
without written authority to collect money since 1985, bolstered the courts finding
that the payment, if at all intended for the supposed repurchase, never redounded to
the benefit of the spouses Roberts.
Papio appealed the decision to the RTC, alleging the following:
I.
THE LOWER COURT GRAVELY ERRED IN NOT DISMISSING THE CASE FOR
EJECTMENT OUTRIGHT ON THE GROUND OF LACK OF CAUSE OF ACTION.
II.
THE LOWER COURT GRAVELY ERRED IN NOT CONSIDERING THE DOCUMENTARY
EVIDENCE ADDUCED BY DEFENDANT-APPELLANT WHICH ESTABLISHED THAT A
REPURCHASE TRANSACTION EXISTED BETWEEN THE PARTIES ONLY THAT
PLAINTIFF-APPELLEE WITHHELD THE EXECUTION OF THE ABSOLUTE DEED OF
SALE AND THE TRANSFER OF TITLE OF THE SAME IN DEFENDANT-APPELLANTS
NAME.
III.
THE LOWER COURT GRAVELY ERRED IN NOT CONSIDERING THAT THE LETTERS OF
PLAINTIFF-[APPELLEE] AND OF HER HUSBAND ADDRESSED TO DEFENDANT-
APPELLANT AND HIS WIFE ARE IN THEMSELVES ADMISSION AND/OR
DECLARATION OF THE FACT THAT DEFENDANT-APPELLANT HAD DULY PAID
PLAINTIFF-APPELLEE OF THE PURCHASE AMOUNT COVERING THE SUBJECT
PROPERTY.
IV.
THE LOWER COURT GRAVELY ERRED IN NOT DISMISSING THE CASE FOR
EJECTMENT OUTRIGHT CONSIDERING THAT PLAINTIFF-APPELLEE WHO IS [AN]
AMERICAN CITIZEN AND RESIDENT THEREIN HAD NOT APPEARED IN COURT ONCE,
NEITHER WAS HER ALLEGED ATTORNEY-IN-FACT, MATILDE AGUILAR NOR [DID]
THE LATTER EVER [FURNISH] THE LOWER COURT A SPECIAL POWER OF ATTORNEY
AUTHORIZING HER TO APPEAR IN COURT IN BEHALF OF HER PRINCIPAL.32
Papio maintained that Roberts had no cause of action for eviction because she had
already ceded her right thereto when she allowed him to redeem and reacquire the
property upon payment of 250,000.00 to Ventura, her duly authorized
representative. He also contended that Robertss claim that the authority of Ventura
is limited only to the collection of the rentals and not of the purchase price was a
mere afterthought, since her appended Affidavit was executed sometime in October
1999 when the proceedings in the MeTC had already started.
On March 26, 2001, Roberts filed a Motion for Issuance of Writ of Execution.33 The
court granted the motion in an Order34 dated June 19, 2001. Subsequently, a Writ of
Execution35 pending appeal was issued on September 28, 2001. On October 29,
2001, Sheriff Melvin M. Alidon enforced the writ and placed Roberts in possession of
the property.
Meanwhile, Papio filed a complaint with the RTC of Makati City, for specific
performance with damages against Roberts. Papio, as plaintiff, claimed that he
entered into a contract of sale with pacto de retro with Roberts, and prayed that the
latter be ordered to execute a Deed of Sale over `the property in his favor and
transfer the title over the property to and in his name. The case was docketed as Civil
Case No. 01-851.
On October 24, 2001, the RTC rendered judgment affirming the appealed decision of
the MeTC. The fallo of the decision reads:36 SO ORDERED.43

Being in accordance with law and the circumstances attendant to the instant case,
the court finds merit in plaintiff-appellees claim. Wherefore, the challenged decision
dated January 18, 2001 is hereby affirmed in toto.
SO ORDERED.37
Both parties filed their respective motions for reconsideration. 38 In an Order39 dated
February 26, 2002, the court denied the motion of Papio but modified its decision
declaring that the computation of the accrued rentals should commence from January
1986, not January 1996. The decretal portion of the decision reads:
According to the appellate court, although the MeTC and RTC were correct in holding
that the MeTC had jurisdiction over the complaint for unlawful detainer, they erred in
ignoring Papios defense of equitable mortgage, and in not finding that the
transaction covered by the deed of absolute sale by and between the parties was one
of equitable mortgage under Article 1602 of the New Civil Code. The appellate court
ruled that Papio retained the ownership of the property and its peaceful possession;
hence, the MeTC should have dismissed the complaint without prejudice to the
outcome of Civil Case No. 01-851 relative to his claim of ownership over the property.
Roberts filed a motion for reconsideration of the decision on the following grounds:

Wherefore, the challenged decision dated January 18, 2001 is hereby affirmed with
modification that defendant pay plaintiff the reasonable rentals accrued for the period
January 1, 1986 to December [31, 1997] per month and thereafter and 10,000.00
[per month] from January 1998 to October 28, 2001 when defendant-appellant
actually vacated the subject leased premises.
I. Petitioner did not allege in his Answer the defense of equitable mortgage; hence,
the lower courts [should] not have discussed the same;
II. Even assuming that Petitioner alleged the defense of equitable mortgage, the
MeTC could not have ruled upon the said defense,

SO ORDERED.40 III. The M[e]TC and the RTC were not remiss in the exercise of their jurisdiction.44

On February 28, 2002, Papio filed a petition for review 41 in the CA, alleging that the The CA denied the motion.
RTC erred in not finding that he had reacquired the property from Roberts for
250,000.00, but the latter refused to execute a deed of absolute sale and transfer In this petition for review, Amelia Salvador-Roberts, as petitioner, avers that:
the title in his favor. He insisted that the MeTC and the RTC erred in giving credence
to petitioners claim that she did not authorize Ventura to receive his payments for
I. THE HONORABLE COURT OF APPEALS GRIEVEOUSLY (SIC) ERRED IN DECLARING
the purchase price of the property, citing Roberts letter dated July 25, 1986 and the
THAT THE M[e]TC AN(D) THE RTC WERE REMISS IN THE EXERCISE OF THAT
letter of Eugene Roberts to Ventura of even date. He also averred that the MeTC and
JURISDICTION ACQUIRED BECAUSE IT DID NOT CONSIDER ALL PETITIONERS
the RTC erred in not considering his documentary evidence in deciding the case.
DEFENSE OF EQUITABLE MORTGAGE.

On August 31, 2004, the CA rendered judgment granting the petition. The appellate
II. THE HONORABLE COURT OF APPEALS GRIEVEOUSLY (SIC) ERRED IN REQUIRING
court set aside the decision of the RTC and ordered the RTC to dismiss the complaint.
THE M[e]TC AND RTC TO RULE ON A DEFENSE WHICH WAS NEVER AVAILED OF BY
The decretal portion of the Decision42 reads:
RESPONDENT.45

WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE and
Petitioner argues that respondent is barred from raising the issue of equitable
a new one entered: (1) rendering an initial determination that the "Deed of Absolute
mortgage because his defense in the MeTC and RTC was that he had repurchased
Sale" dated April 13, 1982 is in fact an equitable mortgage under Article 1603 of the
the property from the petitioner; by such representation, he had impliedly admitted
New Civil Code; and (2) resolving therefore that petitioner Martin B. Papio is entitled
the existence and validity of the deed of absolute sale whereby ownership of the
to possession of the property subject of this action; (3) But such determination of
property was transferred to petitioner but reverted to him upon the exercise of said
ownership and equitable mortgage are not clothed with finality and will not constitute
right. The respondent even filed a complaint for specific performance with damages,
a binding and conclusive adjudication on the merits with respect to the issue of
which is now pending in the RTC of Makati City, docketed as Civil Case No. 01-851
ownership and such judgment shall not bar an action between the same parties
entitled "Martin B. Papio vs. Amelia Salvador-Roberts." In that case, respondent
respecting title to the land, nor shall it be held conclusive of the facts therein found in
claimed that his transaction with the petitioner was a sale with pacto de retro.
the case between the same parties upon a different cause of action not involving
Petitioner posits that Article 1602 of the Civil Code applies only when the defendant
possession. All other counterclaims for damages are hereby dismissed. Cost against
specifically alleges this defense. Consequently, the appellate court was proscribed
the respondent.
from finding that petitioner and respondent had entered into an equitable mortgage
under the deed of absolute sale.
Petitioner further avers that respondent was ably represented by counsel and was
aware of the difference between a pacto de retro sale and an equitable mortgage;
thus, he could not have been mistaken in declaring that he repurchased the property
from her.
As to whether a sale is in fact an equitable mortgage, petitioner claims that the issue
should be properly addressed and resolved by the RTC in an action to enforce
ownership, not in an ejectment case before the MeTC where the main issue involved
is possession de facto. According to her, the obvious import of the CA Decision is
that, in resolving an ejectment case, the lower court must pass upon the issue of
ownership (in this case, by applying the presumptions under Art. 1602) which, in
effect, would use the same yardstick as though it is the main action. The procedure
will not only promote multiplicity of suits but also place the new owner in the absurd
position of having to first seek the declaration of ownership before filing an ejectment
suit.
Respondent counters that the defense of equitable mortgage need not be particularly
stated to apprise petitioner of the nature and character of the repurchase agreement.
He contends that he had amply discussed in his pleadings before the trial and
appellate courts all the surrounding circumstances of the case, such as the relative
situation of the parties at the time; their attitude, acts, conduct, and declarations;
and the negotiations between them that led to the repurchase agreement. Thus, he
argues that the CA correctly ruled that the contract was one of equitable mortgage.
He insists that petitioner allowed him to redeem and reacquire the property, and
accepted his full payment of the property through Ventura, the authorized
representative, as shown by the signed receipts.
The threshold issues are the following: (1) whether the MeTC had jurisdiction in an
action for unlawful detainer to resolve the issue of who between petitioner and
respondent is the owner of the property and entitled to the de facto possession
thereof; (2) whether the transaction entered into between the parties under the Deed
of Absolute Sale and the Contract of Lease is an equitable mortgage over the
property; and (3) whether the petitioner is entitled to the material or de facto
possession of the property.
The Ruling of the Court
On the first issue, the CA ruling (which upheld the jurisdiction of the MeTC to resolve
the issue of who between petitioner or respondent is the lawful owner of the
property, and is thus entitled to the material or de facto possession thereof) is
correct. Section 18, Rule 70 of the Rules of Court provides that when the defendant
raises the defense of ownership in his pleadings and the question of possession
cannot be resolved without deciding the issue of ownership, the issue of ownership
shall be resolved only to determine the issue of possession. The judgment rendered
in an action for unlawful detainer shall be conclusive with respect to the possession
only and shall in no wise bind the title or affect the ownership of the land or building.
Such judgment would not bar an action between the same parties respecting title to
the land or building.46
The summary nature of the action is not changed by the claim of ownership of the
property of the defendant.47 The MeTC is not divested of its jurisdiction over the
unlawful detainer action simply because the defendant asserts ownership over the
property.
The sole issue for resolution in an action for unlawful detainer is material or de facto
possession of the property. Even if the defendant claims juridical possession or
ownership over the property based on a claim that his transaction with the plaintiff
relative to the property is merely an equitable mortgage, or that he had repurchased
the property from the plaintiff, the MeTC may still delve into and take cognizance of
the case and make an initial or provisional determination of who between the plaintiff
and the defendant is the owner and, in the process, resolve the issue of who is
entitled to the possession. The MeTC, in unlawful detainer case, decides the question
of ownership only if it is intertwined with and necessary to resolve the issue of
possession.48 The resolution of the MeTC on the ownership of the property is merely
provisional or interlocutory. Any question involving the issue of ownership should be
raised and resolved in a separate action brought specifically to settle the question
with finality, in this case, Civil Case No. 01-851 which respondent filed before the
RTC.
The ruling of the CA, that the contract between petitioner and respondent was an
equitable mortgage, is incorrect. The fact of the matter is that the respondent
intransigently alleged in his answer, and even in his affidavit and position paper, that
petitioner had granted him the right to redeem or repurchase the property at any
time and for a reasonable amount; and that, he had, in fact, repurchased the
property in July 1985 for 250,000.00 which he remitted to petitioner through an
authorized representative who signed receipts therefor; he had reacquired ownership
and juridical possession of the property after his repurchase thereof in 1985; and
consequently, petitioner was obliged to execute a deed of absolute sale over the
property in his favor.
Notably, respondent alleged that, as stated in his letter to petitioner, he was given
the right to reacquire the property in 1982 within two years upon the payment of
53,000.00, plus petitioners airfare for her trip to the Philippines from the USA and
back; petitioner promised to sign the deed
of absolute sale. He even filed a complaint against the petitioner in the RTC,
docketed as Civil Case No. 01-851, for specific performance with damages to compel
petitioner to execute the said deed of absolute sale over the property presumably on
the strength of Articles 1357 and 1358 of the New Civil Code. Certainly then, his
claim that petitioner had given him the right to repurchase the property is antithetical
to an equitable mortgage.
An equitable mortgage is one that, although lacking in some formality, form or words,
or other requisites demanded by a statute, nevertheless reveals the intention of the
parties to change a real property as security for a debt and contain nothing
impossible or contrary to law.49 A contract between the parties is an equitable
mortgage if the following requisites are present: (a) the parties entered into a
contract denominated as a contract of sale; and (b) the intention was to secure an
existing debt by way of mortgage.50 The decisive factor is the intention of the parties.
In an equitable mortgage, the mortgagor retains ownership over the property but
subject to foreclosure and sale at public auction upon failure of the mortgagor to pay
his obligation.51 In contrast, in a pacto de retro sale, ownership of the property sold is
immediately transferred to the vendee a retro subject only to the right of the vendor
a retro to repurchase the property upon compliance with legal requirements for the
repurchase. The failure of the vendor a retro to exercise the right to repurchase
within the agreed time vests upon the vendee a retro, by operation of law, absolute
title over the property.52
One repurchases only what one has previously sold. The right to repurchase
presupposes a valid contract of sale between the same parties. 53 By insisting that he
had repurchased the property, respondent thereby admitted that the deed of
absolute sale executed by him and petitioner on April 13, 1982 was, in fact and in
law, a deed of absolute sale and not an equitable mortgage; hence, he had acquired
ownership over the property based on said deed. Respondent is, thus, estopped from
asserting that the contract under the deed of absolute sale is an equitable mortgage
unless there is allegation and evidence of palpable mistake on the part of
respondent;54 or a fraud on the part of petitioner. Respondent made no such
allegation in his pleadings and affidavit. On the contrary, he maintained that
petitioner had sold the property to him in July 1985 and acknowledged receipt of the
purchase price thereof except the amount of 39,000.00 retained by Perlita Ventura.
Respondent is thus bound by his admission of petitioners ownership of the property
and is barred from claiming otherwise.55
Respondents admission that petitioner acquired ownership over the property under
the April 13, 1982 deed of absolute sale is buttressed by his admission in the Contract
of Lease dated April 15, 1982 that petitioner was the owner of the property, and that
he had paid the rentals for the duration of the contract of lease and even until 1985
upon its extension. Respondent was obliged to prove his defense that petitioner had
given him the right to repurchase, and that petitioner obliged herself to resell the
property for 250,000.00 when they executed the April 13, 1982 deed of absolute
sale.
We have carefully reviewed the case and find that respondent failed to adduce
competent and credible evidence to prove his claim.
As gleaned from the April 13, 1982 deed, the right of respondent to repurchase the
property is not incorporated therein. The contract is one of absolute sale and not one
with right to repurchase. The law states that if the terms of a contract are clear and
leave no doubt upon the intention of the contracting parties, the literal meaning of its
stipulations shall control.56 When the language of the contract is explicit, leaving no
doubt as to the intention of the drafters, the courts may not read into it any other
intention that would contradict its plain import.57 The clear terms of the contract
should never be the subject matter of interpretation. Neither abstract justice nor the
rule of liberal interpretation justifies the creation of a contract for the parties which
they did not make themselves, or the imposition upon one party to a contract or
obligation to assume simply or merely to avoid seeming hardships. 58 Their true
meaning must be enforced, as it is to be presumed that the contracting parties know
their scope and effects.59 As the Court held in Villarica, et al. v. Court of Appeals:60
The right of repurchase is not a right granted the vendor by the vendee in a
subsequent instrument, but is a right reserved by the vendor in the same instrument
of sale as one of the stipulations of the contract. Once the instrument of absolute
sale is executed, the vendor can no longer reserve the right to repurchase, and any
right thereafter granted the vendor by the vendee in a separate instrument cannot be
a right of repurchase but some other right like the option to buy in the instant case. 61
In Ramos v. Icasiano,62 we also held that an agreement to repurchase becomes a
promise to sell when made after the sale because when the sale is made without
such agreement the purchaser acquires the thing sold absolutely; and, if he
afterwards grants the vendor the right to repurchase, it is a new contract entered
into by the purchaser as absolute owner. An option to buy or a promise to sell is
different and distinct from the right of repurchase that must be reserved by means of
stipulations to that effect in the contract of sale.63
There is no evidence on record that, on or before July 1985, petitioner agreed to sell
her property to the respondent for 250,000.00. Neither is there any documentary
evidence showing that Ventura was authorized to offer for sale or sell the property
for and in behalf of petitioner for 250,000.00, or to receive the said amount from
respondent as purchase price of the property. The rule is that when a sale of a piece
of land or any interest therein is through an agent, the authority of the latter shall be
in writing; otherwise, the sale shall be void64 and cannot produce any legal effect as
to transfer the property from its lawful owner.65 Being inexistent and void from the
very beginning, said contract cannot be ratified.66 Any contract entered into by
Ventura for and in behalf of petitioner relative to the sale of the property is void and
cannot be ratified by the latter. A void contract produces no effect either against or in
favor of anyone.67
Respondent also failed to prove that the negotiations between him and petitioner has
culminated in his offer to buy the property for 250,000.00, and that they later on
agreed to the sale of the property for the same amount. He likewise failed to prove
that he purchased and reacquired the property in July 1985. The evidence on record
shows that petitioner had offered to sell the property for US$15,000 on a "take it or
leave it" basis in May 1984 upon the expiration of the Contract of Lease68 an offer
that was rejected by respondentwhich is why on December 30, 1997, petitioner
and her husband offered again to sell the property to respondent for 670,000.00
inclusive of back rentals and the purchase price of the property under the April 13,
1982 Deed of absolute Sale.69 The offer was again rejected by respondent. The final
offer appears to have been made on January 11, 1998 70 but again, like the previous
negotiations, no contract was perfected between the parties.
A contract is a meeting of minds between two persons whereby one binds himself,
with respect to the other, to give something or to render some service.71 Under
Article 1318 of the New Civil Code, there is no contract unless the following requisites
concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
Contracts are perfected by mere consent manifested by the meeting of the offer and
the acceptance upon the thing and the cause which are to constitute the contract. 72
Once perfected, they bind the contracting parties and the obligations arising
therefrom have the form of law between the parties which must be complied with in
good faith. The parties are bound not only to the fulfillment of what has been
expressly stipulated but also to the consequences which, according to their nature,
may be in keeping with good faith, usage and law.73
There was no contract of sale entered into by the parties based on the Receipts
dated July 1985 and June 16, 1986, signed by Perlita Ventura and the letter of
petitioner to respondent dated July 25, 1986.
By the contract of sale, one of the contracting parties obligates himself to transfer the
ownership of and deliver a determinate thing and the other, to pay therefor a price
certain in money or its equivalent.74 The absence of any of the essential elements will
negate the existence of a perfected contract of sale. As the Court ruled in Boston
Bank of the Philippines v. Manalo:75
A definite agreement as to the price is an essential element of a binding agreement
to sell personal or real property because it seriously affects the rights and obligations
of the parties. Price is an essential element in the formation of a binding and
enforceable contract of sale. The fixing of the price can never be left to the decision
of one of the contracting parties. But a price fixed by one of the contracting parties, if
accepted by the other, gives rise to a perfected sale.76
A contract of sale is consensual in nature and is perfected upon mere meeting of the
minds. When there is merely an offer by one party without acceptance of the other,
there is no contract.77 When the contract of sale is not perfected, it cannot, as an
independent source of obligation, serve as a binding juridical relation between the
parties.78
Respondents reliance on petitioners letter to him dated July 25, 1986 is misplaced.
The letter reads in full:
7-25-86
Dear Martin & Ising,
Enclosed for your information is the letter written by my husband to Perlita. I hope
that you will be able to convince your cousin that its to her best interest to deposit
the balance of your payment to me of 39,000.00 in my bank acct. per our
agreement and send me my bank book right away so that we can transfer the title of
the property.
Regards,
Amie 79
We have carefully considered the letter of Perlita Ventura, dated July 18, 1986, and
the letter of Eugene Roberts, dated July 25, 1986, where Ventura admitted having
used the money of petitioner amounting to 39,000.00 without the latters knowledge
for the plane fare of Venturas parents. Ventura promised to refund the amount of
39,000.00, inclusive of interests, within one year.80 Eugene Roberts berated Ventura
and called her a thief for stealing his and petitioners money and that of respondents
wife, Ising, who allegedly told petitioner that she, Ising, loaned the money to her
parents for their plane fare to the USA. Neither Ventura nor Eugene Roberts declared
in their letters that Ventura had used the 250,000.00 which respondent gave to her.
Petitioner in her letter to respondent did not admit, either expressly or impliedly,
having received 211,000.00 from Ventura. Moreover, in her letter to petitioner, only
a week earlier, or on July 18, 1986, Ventura admitted having spent the 39,000.00
and pleaded that she be allowed to refund the amount within one (1) year, including
interests.
Naririto ang total ng pera mo sa bankbook mo, 55,000.00 pati na yong deposit na
sarili mo at bale ang nagalaw ko diyan ay 39,000.00. Huwag kang mag-alala ibabalik
ko rin sa iyo sa loob ng isang taon pati interest.
It is incredible that Ventura was able to remit to petitioner 211,000.00 before July
25, 1986 when only a week earlier, she was pleading to petitioner for a period of one
year within which to refund the 39,000.00 to petitioner.
It would have bolstered his cause if respondent had submitted an affidavit of Ventura
stating that she had remitted 211,000.00 out of the 250,000.00 she received from
respondent in July 1985 and June 20, 1986.
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed Decision
of the Court of Appeals in CA-G.R. CV No. 69034 is REVERSED and SET ASIDE. The
Decision of the Metropolitan Trial Court, affirmed with modification by the Regional
Trial Court, is AFFIRMED.
SO ORDERED.

G.R. No. 152199 June 23, 2005
LUIS S. MISTERIO, GABRIEL S. MISTERIO, FRANCIS S. MISTERIO, THELMA
S. MISTERIO and ESTELLA S. MISTERIO-TAGIMACRUZ, petitioners,
vs.
CEBU STATE COLLEGE OF SCIENCE AND TECHNOLOGY (CSCST), duly
represented by its President, DR. JOSE SAL TAN, respondent.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari to annul the Decision1 dated July 31, 2000 of
the Court of Appeals (CA) in CA-G.R. CV No. 53592, as well as its Resolution2 denying
the motion for reconsideration. The CA reversed and set aside the Decision 3 of the
Regional Trial Court (RTC) of Cebu City, Branch 18, in Civil Case No. CEB-15267.
The Antecedents
Sudlon Agricultural High School (SAHS) was established in Cebu Province on August
2, 1948. The administrative and supervisory control of the school was handled by the
Division of Schools of the same province. The original site of the school was in
Sudlon, about 33 kilometers from Cebu City via the Tabunak-Talisay Highway.
In 1952, the Provincial Board of Cebu granted the usufruct of 41 parcels of land,
covering 104.5441 hectares of the Banilad Friar Lands Estate to the SAHS. Pursuant
to Republic Act No. 948, SAHS was nationalized on June 20, 1953.
On December 31, 1956, Asuncion Sadaya-Misterio executed a Deed of Sale of a
parcel of land denominated as Lot No. 1064 of the Banilad Friar Lands Estate, in
favor of the SAHS. The property had an area of 4,563 square meters and was
situated at Lahug, Cebu City, covered by Transfer Certificate of Title (TCT) No. 13086
of the Registry of Deeds of the province of Cebu. The sale was subject to the right of
the vendor to repurchase the property after the high school shall have ceased to
exist, or shall have transferred its site elsewhere.
Consequently, on May 22, 1957, TCT No. 13086 was cancelled and in lieu thereof,
TCT No. 15959 was issued by the Registry of Deeds of Cebu City in the name of
SAHS.4 The right of the vendor to repurchase the property was annotated at the
dorsal portion thereof.
On March 18, 1960, the Provincial Board of Cebu, through Resolution No. 491,
donated the aforementioned 41 lots to SAHS, subject to two (2) conditions: (1) that if
the SAHS ceases to operate, the ownership of the lots would automatically revert to
the province, and (2) that the SAHS could not alienate, lease or encumber the
properties.
On June 10, 1983, Batas Pambansa (B.P.) Blg. 412, entitled "An Act Converting the
Cebu School of Arts and Trades in Cebu City into a Chartered College to be Known as
the Cebu State College of Science and Technology, Expanding its Jurisdiction and
Curricular Programs" took effect. The law incorporated and consolidated as one
school system certain vocational schools in the province of Cebu, including the SAHS,
and which became an extension of the Cebu State College of Science and Technology
(CSCST).
In the meantime, the province of Cebu decided to recover the 41 lots it had earlier
donated to SAHS on the ground that the said deed was void. The province of Cebu
opined that based on the initial report of its provincial attorney, the SAHS had no
personality to accept the donation.
In the meantime, Asuncion died intestate. When her heirs learned that the province
of Cebu was trying to recover the property it had earlier donated to SAHS, they went
to the province of Cebu on August 19, 1998, informing it of their intention to exercise
their right to repurchase the property as stipulated in the aforecited deed of sale
executed by their predecessor-in-interest.
On February 1, 1989, the province of Cebu (represented by then Governor Emilio M.
R. Osmea), and the CSCST (represented by then DECS Secretary Lourdes R.
Quisumbing), entered into a Memorandum of Agreement over the 40 parcels of land,
allocating 53 hectares to the province of Cebu, and 51 hectares for the SAHS. The
agreement was ratified by the Sangguniang Panlalawigan and the SAHS Board of
Trustees.
In a Letter5 dated March 13, 1990, the heirs of the late Asuncion Sadaya-Misterio,
through their counsel, Atty. Ricardo G. Padilla, informed CSCST of the heirs intention
to exercise the option to repurchase Lot No. 1064 granted to them under the deed of
sale, as the SAHS had ceased to exist.
In response thereto, Jesus T. Bonilla, as Vocational School Superintendent II of
CSCST, wrote Atty. Padilla on March 29, 1990, informing the latter that the SAHS still
existed and "[i]n fact, from a purely secondary school it is now offering collegiate
courses." He explained that "what has been changed is only the name of the school
[to CSCST] which does not imply the loss of its existence."6
On December 23, 1993, Luis, Gabriel, Francis, Thelma, all surnamed Misterio, and
Estella S. Misterio-Tagimacruz, the legitimate heirs of the late Asuncion Sadaya-
Misterio and herein petitioners, filed a Complaint7 before the RTC of Cebu City,
Branch 18, for "Nullity of Sale and/or Redemption." Named party-defendants were
the CSCST, Armand Fabella as CSCST Chairman, and Dr. Mussolini C. Barillo as
CSCST President, herein respondents. Docketed as Civil Case No. 66-15267, the
complaint alleged in part as follows:
FIRST CAUSE OF ACTION
12. Sudlon Agricultural High School at the time of the execution of the contract of
sale with the late Asuncion Sadaya sometime on December 31, 1956 had no juridical
personality of its (sic) own. Hence, it cannot acquire and possess any property,
including the parcel of land subject of this action.
13. The Contract of Sale executed was, therefore, null and void and therefore non-
existent. Thus, the land subject of the sale should be reconveyed to the legitimate
heirs of Asuncion Sadaya.
SECOND CAUSE OF ACTION
14. On June 10, 1983, Batas Pambansa Blg. 412 was enacted, abolishing the then
Sudlon Agricultural College and converting it to become part of the Cebu State
College for Science and Technology (CSCST).
15. The said law also transferred all the personnel, properties, including buildings,
sites, and improvements, records, obligations, monies and appropriation of Sudlon to
the CSCST.
16. The abolition of Sudhon and its ( sic) merger or consolidation as part of CSCST
had rendered operative the condition in the Deed of Sale granting the vendor and her
heirs, Asuncion Sadaya, the right to redeem Lot No. 1064.
17. By the legislative act of merging or consolidating Sudlon Agricultural College with
other colleges, the separate existence of the constituent schools including Sudlon
Agricultural College has ceased to exist as a legal consequence of merger or
consolidation.
18. CSCST, as transferee of the land subject of sale, is the actual possessor of the
land and is the proper party-defendant for redemption.8
The petitioners prayed that, after due proceeding, judgment be rendered in their
favor, thus
WHEREFORE, the foregoing premises considered, it is most respectfully prayed of this
Honorable Court to render a decision in favor of the plaintiffs to the following effect:
1. Declare the Contract of Sale between the late Asuncion Sadaya and Sudlon
Agricultural High School as null and void for the latter has no legal personality and
cannot own a real property.
As a consequence, to order the actual possessor of the land CSCST to deliver and
reconvey the land to plaintiffs and the latter is willing to return the money received.
2. In the alternative, declare that Sudlon Agricultural High School has ceased to exist
and allow the plaintiffs to redeem Lot 1064 in the amount stipulated in the contract.
3. Other reliefs just and equitable under the premises are prayed for.9
In their answer to the complaint, the respondents alleged that:
11. Complainants in their complaint failed to state sufficient cause of action which
may be considered enough ground to dismiss this instant case;
12. The complainants are estopped from contesting the juridical capacity of Sudlon to
own or acquire this property which is the subject of this case, after a long period of
silence or inaction from the transfer of the title in favor of Sudlon Agricultural School;
13. The contract of sale having been mutually and freely entered into by the parties
is valid and binding between the vendor and the vendee, including their successors-
in-interest; hence, reconveyance is not proper;
14. The enactment of B.P. 412, which is the Charter of the College has not caused
the abolition of Sudlon Agricultural School. In fact, the school has now grown into a
higher status, because it has now admitted collegiate students, in addition to its
secondary students;
15. The instruction of the Sudlon Agricultural School is actually carried out right on
the same site which complainants claim have ceased to exist not the site of the
school transferred somewhere else. Therefore, the conditions in the deed of sale
have not rendered operative the right of the vendor to exercise the same.10
After the preliminary conference on May 23, 1994, the trial court issued a pre-trial
order defining the issues as follows:
(1) whether Sudlon Agricultural School has still retained its personality as such
school or it had ceased to exist, and (2) whether the plaintiffs have the right to
exercise the right of redemption over the property.
Upon the order of the RTC, the Clerk of Court conducted an ocular inspection on Lot
No. 1064. The court-appointed commissioner submitted his report11 on June 10,
1994.
On November 29, 1995, the RTC rendered judgment, the dispositive portion of which
reads:
WHEREFORE, in view of all the foregoing considerations, JUDGMENT is hereby V
rendered in favor of the plaintiffs and against the defendants declaring the Deed of
Sale entered into by and between Asuncion Sadaya and Sudlon Agricultural High THE TRIAL COURT ERRED IN NOT HOLDING THAT THE DEED OF SALE IS A
School as null and void for the latters lack of juridical personality to acquire real CONSENSUAL CONTRACT FREELY ENTERED INTO BY THE PARTIES AND NOT A
property or to enter into such transaction or having ceased to exist and ordering the CONTRACT OF ADHESION.
Cebu State College of Science and Technology being the actual possessor of the land,
Lot 1064, to deliver and reconvey the same to plaintiffs upon payment of the
VI
aforementioned purchased price.

THE TRIAL COURT ERRED IN NOT HOLDING THAT THE DEED OF SALE IS NOT
No pronouncement as to costs.
AMBIGUOUS.

SO ORDERED.12
VII

The RTC ruled that the donation was void ab initio as the SAHS, in the first place, did
THE TRIAL COURT ERRED IN NOT HOLDING THAT THE LOT SUBJECT OF THE SALE
not have the personality to be a donee of real property. Moreover, with the
IS STILL BEING USED FOR SCHOOL PURPOSES AS ORIGINALLY INTENDED BY THE
enactment of B.P. Blg. 412, the SAHS ceased to exist and to operate as such. The
PARTIES.
RTC declared that, under the Corporation Code, the constituent corporations (SAHS
and CSCST) became one through the merger or consolidation, with CSCST as the
surviving entity. Whether Lot No. 1064 was still being used for school purposes was VIII
of no moment, and to "say that [SAHS] still exists but is now forming part of CSCST
is stretching the interpretation of the contract too far." It concluded that no THE TRIAL COURT ERRED IN NOT HOLDING THAT B.P. [BLG.] 412 DID NOT
prescription lay as against an inexistent contract. DISSOLVE OR EXTINGUISH SUDLON AGRICULTURAL HIGH SCHOOL BUT MERELY
SUBJECTED THE SAME TO THE SUPERVISION AND ADMINISTRATION OF CSCST.
The CSCST, through the Office of Solicitor General (OSG), appealed the decision to
the CA, and outlined the following assignment of errors: IX

I THE TRIAL COURT ERRED IN NOT HOLDING THAT THE SUDLON AGRICULTURAL
THE TRIAL COURT ERRED IN NOT STICKING TO THE ISSUES DEFINED BY THE
PARTIES DURING PRE-TRIAL.
II
THE TRIAL COURT ERRED IN NOT HOLDING THAT APPELLEES ARE ESTOPPED FROM
QUESTIONING THE PERSONALITY OF THE SUDLON AGRICULTURAL HIGH SCHOOL.
HIGH SCHOOL AND/OR CSCST IS/ARE NOT CORPORATIONS GOVERNED BY THE
COPORATION CODE.
On October 3, 1997, the CSCST and the province of Cebu executed a Deed for
Reversion, in which the CSCST deeded to the province of Cebu the property covered
by TCT No. 15959. Based on the said deed, TCT No. 146351 was issued by the
Register of Deeds on November 12, 1997 in the name of the province of Cebu. 13
Annotated at the dorsal portion thereof was the notice of the pending cases before
the RTC and the CA.

III
On July 31, 2000, the CA rendered its decision reversing the RTCs decision. The fallo
of the decision reads:
THE TRIAL COURT ERRED IN GIVING WEIGHT TO INADMISSIBLE AND SELF-
SERVING EVIDENCE.
WHEREFORE, the appealed decision is REVERSED and SET ASIDE, and a new one
issued, DISMISSING the instant complaint for lack of merit.
IV
SO ORDERED.14
THE TRIAL COURT ERRED IN NOT HOLDING THAT APPELLEES ACTION IS BARRED
BY PRESCRIPTION.
The appellate court held that the lower court should have confined itself to the issues
defined by the parties during pre-trial, namely, (1) whether Sudlon Agricultural
School still retained its personality as such school or was still in existence; and (2)
whether the petitioners had the right to exercise the right to repurchase the property.
The CA declared that the trial of the case should have been limited to these two
issues.
While it affirmed the RTC ruling that the SAHS had ceased to exist when B.P. Blg. 412
took effect, the appellate court ruled that the period for the petitioners to repurchase
the property expired on June 1987, four years after the enactment of B.P. Blg. 412. It
held that the period within which the property was to be repurchased must be
restrictively applied in order to settle ownership and title at the soonest possible time,
and not to leave such title to the subject property uncertain.
The petitioners filed a motion for the reconsideration of the decision, which the CA
denied in a Resolution dated January 25, 2002.
The petitioners filed the present petition for review on certiorari, contending that the
CA erred in (a) resolving the appeal of the respondents based on prescription,
although the issue was never raised during the trial; and (b) resolving that their
action had already prescribed.
The petition is without merit.
The petitioners fault the CA for holding that their right to repurchase Lot No. 1064
had long since prescribed. Citing Article 1606(3) of the New Civil Code, they argue
that "[p]rescription should start to run from the time it is legally feasible for the party
to redeem the land, which is the time when the action to redeem has accrued." The
petitioners argue that this is so since the issue of whether the SAHS had ceased to
exist had still yet to be resolved. The petitioners posit that unless and until judgment
would be rendered stating that the SAHS has ceased to exist, the period to
repurchase the property would not start to run. It is only from the finality of the said
judgment that the right to repurchase the property may be exercised; hence, they
still had thirty (30) days from the date of the promulgation of the CA decision within
which to repurchase the property. The petitioners further aver that since the lien,
their right to repurchase the property, was annotated on the title of the land, the
right to exercise the same is imprescriptible. They argue that they had been vigilant
of their right to repurchase the property, as far back as 1973. In fact, they made
tender of payment in March 1990, well within the ten-year prescriptive period. They
point out that the CSCST had abandoned its defense of prescription by contending
that the condition for repurchase had not yet become operational.
The OSG, for its part, contends that the petitioners reliance on Article 1606(3) of the
New Civil Code is misplaced, because the law applies only to sales where the right to
repurchase is not expressly agreed upon by the parties. Here, the right to repurchase
is unquestionable. The OSG, likewise, argues that the annotation of the right of
redemption has no bearing on the issue of prescription. It posits that the "Torrens
System has absolutely nothing to do with the period of prescription of ones right to
repurchase, as in the instant case." The OSG concludes that whatever right the
petitioners had on the property had already prescribed by the mere lapse of time, by
reason of negligence.1avvphi1.net
Central to the issue is the following provision in the deed of sale executed by
Asuncion Sadaya-Misterio in favor of the SAHS:
That the Vendee herein, the SUDLON AGRICULTURAL HIGH SCHOOL, hereby
obligates itself to use the aforementioned Lot No. 1064 for school purposes only, and
it is a condition attached to this contract that the aforementioned vendee obligates
itself to give the Vendor herein, the right to repurchase the said lot by paying to the
Vendee herein the aforementioned consideration of 9,130.00 only, after the
aforementioned SUDLON AGRICULTURAL HIGH SCHOOL shall ceased ( sic) to exist or
shall have transferred its school site elsewhere.15
The essence of a pacto de retro sale is that title and ownership of the property sold is
immediately rested in the vendee a retro, subject to the restrictive condition of
repurchase by the vendor a retro within the period provided in Article 1606 of the
New Civil Code, to wit:
Art. 1606. The right referred to in Article 1601, in the absence of an express
agreement, shall last four years from the date of the contract.
Should there be an agreement, the period cannot exceed ten years.lawphil.net
However, the vendor may still exercise the right to repurchase within thirty days from
the time final judgment was rendered in a civil action on the basis that the contract
was a true sale with right to repurchase.
The failure of the vendee a retro to repurchase the property vests upon the latter by
operation of law the absolute title and ownership over the property sold.16
Pending the repurchase of the property, the vendee a retro may alienate, mortgage
or encumber the same, but such alienation or encumbrance is as revocable as is his
right. If the vendor a retro repurchases the property, the right of the vendee a retro
is resolved, because he has to return the property free from all damages and
encumbrances imposed by him.17 The vendor a retro may also register his right to
repurchase under the Land Registration Act and may be enforced against any person
deriving title from the vendee a retro.18
In this case, the vendor a retro and the vendee a retro did not agree on any period
for the exercise of the right to repurchase the property. Hence, the vendor a retro
may extend the said right within four days from the happening of the allocated
condition contained in the deed: (a) the cessation of the existence of the SAHS, or
(b) the transfer of the school to other site.
We note that, as gleaned from the petitioners complaint before the trial court, they
alleged that the SAHS ceased to exist on June 10, 1983, when B.P. Blg. 412 took
effect, abolishing therein the SAHS which, in the meantime, had been converted into
the Sudlon Agricultural College. The CA found the position of the petitioners to be
correct, and declared that conformably to the condition in the deed of sale, and
under Article 1606 of the New Civil Code, the right of the petitioners as successors-in-
interest of the vendee a retro commenced to run on June 10, 1983. Hence, they had
until June 10, 1987 within which to repurchase the property; however, they failed to
do so.
It is true that respondent CSCST, through counsel, was of the view that despite the
effectivity of B.P. Blg. 412, the structure and facilities of the SAHS remained in the
property and, as such, it cannot be said that the said school had ceased to exist. It
argued that the phrase "SAHS ceased to exist" in the deed meant that the structure
and facilities of the school would be destroyed or dismantled, and had no relation
whatsoever to the abolition of the school and its integration into the Cebu State
College for Science and Technology. However, the CA rejected the position of the
respondent CSCST, as well as that of the OSG, and affirmed that of the petitioners.
The four-year period for the petitioners to repurchase the property was not
suspended merely and solely because there was a divergence of opinion between the
petitioners, on the one hand, and the respondent, on the other, as to the precise
meaning of the phrase "after the SAHS shall cease to exist" in the deed of sale. The
existence of the petitioners right to repurchase the property was not dependent upon
the prior final interpretation by the court of the said phrase. Indeed, the petitioners
specifically alleged in the complaint that:
16. The abolition of Sudlon and its merger or consolidation as part of CSCST had
rendered operative the condition in the Deed of Sale granting the vendor and her
heirs, Asuncion Sadaya, the right to redeem Lot No. 1064.
17. By the legislative act of merging or consolidating Sudlon Agricultural College with
other colleges, the separate existence of the constituent schools including Sudlon
Agricultural College has ceased to exist as a legal consequence of merger or
consolidation.
18. CSCST, as transferee of the land subject of sale, is the actual possessor of the
land and is the proper party defendant for redemption.19
The petitioners are estopped from changing on appeal their theory of the case in the
trial court and in the CA.20
We agree with the contention of the OSG that the annotation of the petitioners right
to repurchase the property at the dorsal side of TCT No. 15959 has no relation
whatsoever to the issue as to when such right had prescribed. The annotation was
only for the purpose of notifying third parties of the petitioners right to repurchase
the property under the terms of the deed of sale, and the law.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED DUE COURSE. Costs
against the petitioners.
SO ORDERED.

FIRST CAUSE OF ACTION

12. Sudlon Agricultural High School at the time of the execution of the contract of
sale with the late Asuncion Sadaya sometime on December 31, 1956 had no juridical
personality of its own. Hence, it cannot acquire and possess any property, including
the parcel of land subject of this action.

13. The Contract of Sale executed was therefore null and void and therefore non-
existent. Thus, the land subject of sale should be reconveyed to the legitimate heirs
of Asuncion Sadaya.

SECOND CAUSE OF ACTION

14. On June 10, 1983, Batas Pambansa Blg. 412 was enacted abolishing the then
Sudlon Agricultural College and converting it to become part of the Cebu State
College for Science and Technology (CSCST).

15. The said law also transferred all the personnel, properties, including buildings,
sites, and improvements, records, obligations, monies and appropriations of Sudlon
to the CSCST.

[G.R. No. 117501. July 8, 1997]
SOLID HOMES, INC., petitioner, vs. HON. COURT OF APPEALS, STATE
FINANCING CENTER, INC., and REGISTER OF DEEDS FOR RIZAL,
respondents.
DECISION
PANGANIBAN, J.:
Is the failure to annotate the vendor a retros right of repurchase in the certificates of
title of the real estate properties subject of dacion en pago conclusive evidence of the
vendee a retros malice and bad faith, entitling the former to damages? In a sale with
pacto de retro, is the repurchase price limited by Article 1616 of the Civil Code?
These are the basic questions raised in this petition for review on certiorari under
Rule 45 of the Rules of Court assailing the Court of Appeals[if !supportFootnotes][1][endif]
Decision[if !supportFootnotes][2][endif] promulgated on April 25, 1994 and Resolution[if
!supportFootnotes][3][endif] of September 26, 1994 in CA-G.R. CV No. 39154, affirming the
decision[if !supportFootnotes][4][endif] of the Regional Trial Court of Pasig, Branch 157 in Civil
Case No. 51214. The said RTC decision sustained the validity of the subject dacion en
pago agreement and declared the same as a true sale with right of repurchase.
The Facts
The facts of the case as narrated by the trial court and reproduced in the assailed
Decision of the Court of Appeals are undisputed by the parties. These are the
relevant portions:
It appears that on June 4, 1979, Solid Homes executed in favor of State Financing
(Center, Inc.) a Real Estate Mortgage (Exhibit 3) on its properties embraced in
Transfer Certificate of Title No. 9633 (Exhibit 9) and Transfer Certificate of Title No.
(492194) -11938 (Exhibit 8) of the Registry of Deeds in Pasig, Metro Manila, in order
to secure the payment of a loan of P10,000,000.00 which the former obtained from
the latter. A year after, Solid Homes applied for and was granted an additional loan of
P1,511,270.03 by State Financing, and to secure its payment, Solid Homes executed
the Amendment to Real Estate Mortgage dated June 4, 1980 (Exhibit 4) whereby the
credits secured by the first mortgage on the abovementioned properties were
increased from P10,000,000.00 to P11,511,270.03. Sometime thereafter, Solid Homes
obtained additional credits and financing facilities from State Financing in the sum of
P1,499,811,97, and to secure its payment, Solid Homes executed in favor of State
Financing the Amendment to Real Estate Mortgage dated March 5, 1982 (Exhibit 5)
whereby the mortgage executed on its properties on June 4, 1979 was again
amended so that the loans or credits secured thereby were further increased from
P11,511,270.03 to P13,011,082.00.
When the loan obligations abovementioned became due and payable, State Financing
made repeated demands upon Solid Homes for the payment thereof, but the latter
failed to do so. So, on December 16, 1982, State Financing filed a petition for
extrajudicial foreclosure of the mortgages abovementioned with the Provincial Sheriff
of Rizal, who, in pursuance of the petition, issued a Notice of Sheriffs Sale dated
February 4, 1983 (Exhibit 6), whereby the mortgaged properties of Solid Homes and
the improvements existing thereon, including the V.V. Soliven Towers II Building,
were set for public auction sale on March 7, 1983 in order to satisfy the full amount
of Solid Homes mortgage indebtedness, the interest thereon, and the fees and
expenses incidental to the foreclosure proceedings.
Before the scheduled public auction sale x x x, the mortgagor Solid Homes made
representations and induced State Financing to forego with the foreclosure of the real
estate mortgages referred to above. By reason thereof, State Financing agreed to
suspend the foreclosure of the mortgaged properties, subject to the terms and
conditions they agreed upon, and in pursuance of their said agreement, they
executed a document entitled MEMORANDUM OF AGREEMENT/DACION EN
PAGO (Memorandum) dated February 28, 1983 (Exhibits C and 7) x x x. Among the
terms and conditions that said parties agreed upon were x x x:
1. (Solid Homes) acknowledges that it has an outstanding obligation due and payable
to (State Financing) and binds and obligates to pay (State Financing) the totality of
its outstanding obligation in the amount of P14,225,178.40, within one hundred
eighty (180) days from date of signing of this instrument. However, it is understood
and agreed that the principal obligation of P14,225,178.40 shall earn interest at the
rate of 14% per annum and penalty of 16% per annum counted from March 01, 1983
until fully paid.
2. The parties agree that should (Solid Homes) be able to pay (State Financing) an
amount equivalent to sixty per centum (60%) of the principal obligation, or the
amount of P8,535,107.04, within the first one hundred eighty (180) days, (State
Financing) shall allow the remaining obligation of (Solid Homes) to be restructured at
a rate of interest to be mutually agreed between the parties.
3. It is hereby understood and agreed that in the event (Solid Homes) fails to comply
with the provisions of the preceding paragraphs, within the said period of one
hundred eighty (180) days, this document shall automatically operate to be an
instrument of dacion en pago without the need of executing any document to such
an effect and (Solid Homes) hereby obligates and binds itself to transfer, convey and
assign to (State Financing), by way of dacion en pago, its heirs, successors and
assigns, and (State Financing) does hereby accept the conveyance and transfer of the
above-described real properties, including all the improvements thereon, free from all
liens and encumbrances, in full payment of the outstanding indebtedness of (Solid
Homes) to (State Financing) x x x.
xxxxxxxxx
6. (State Financing) hereby grants (Solid Homes) the right to repurchase the
aforesaid real properties, including the condominium units and other improvements
thereon, within ten (10) months counted from and after the one hundred eighty
(180) days from date of signing hereof at an agreed price of P14,225,178.40, or as
reduced pursuant to par. 5 (d), plus all cost of money equivalent to 30% per annum,
registration fees, real estate and documentary stamp taxes and other incidental
expenses incurred by (State Financing) in the transfer and registration of its
ownership via dacion en pago x x x.
xxx xxx xxx
Subsequently, Solid Homes failed to pay State Financing an amount equivalent to
60% (or P8,535,107.04) of the principal obligation of P14,225,178.40 within 180 days
from the signing of the (Memorandum) on February 28, 1983, as provided under
paragraph 2 of the said document. Hence, and in pursuance of paragraph 3 thereof
which provided that this document shall automatically operate to be an instrument of
dacion en pago without the need of executing any document to such an effect x x
x(,) State Financing registered the said (Memorandum) with the Register of Deeds in
Pasig, Metro Manila on September 15, 1983. Consequently, the said Register of
Deeds cancelled TCT No. 9633 and TCT No. (492194) 11938 in the name of Solid
Homes which were the subject matter of the (Memorandum) abovementioned, and in
lieu thereof, the said office issued Transfer Certificate of Title No. 40533 (Exhibits J
and 11) and Transfer Certificate of Title No. 40534 (Exhibits K and 12) in the name of
State Financing. x x x
In a letter dated October 11, 1983 (Exhibit 16), State Financing informed Solid
Homes of the transfer in its name of the titles to all the properties subject matter of
the (Memorandum) and demanded among other things, that Solid Homes turn over
to State Financing the possession of the V.V. Soliven Towers II Building erected on
two of the said properties. Solid Homes replied with a letter dated October 14, 1983,
(Exhibit 20) asking for a period of ten (10) days within which to categorize its position
on the matter; and in a subsequent letter dated October 24, 1983, Solid Homes made
known to State Financing its position that the (Memorandum) is null and void
because the essence thereof is that State Financing, as mortgagee creditor, would be
able to appropriate unto itself the properties mortgaged by Solid Homes which is in
contravention of Article 2088 of the Civil Code. State Financing then sent to Solid
Homes another letter dated November 3, 1983 (Exhibit 17), whereby it pointed out
that Art. 2088 of the Civil Code is not applicable to the (Memorandum) they have
executed, and also reiterated its previous demand that Solid Homes turn over to it
the possession of the V.V. Soliven Towers II Building within five (5) days, but Solid
Homes did not comply with the said demand.
x x x and within that period of repurchase, Solid Homes wrote to State Financing a
letter dated April 30, 1984 containing its proposal for repayment schemes under
terms and conditions indicated therein for the repurchase of the properties referred
to. In reply to said letter, State Financing sent a letter dated May 17, 1984 (Exhibit
18) advising Solid Homes that State Financings management was not amenable to its
proposal, and that by way of granting it some concessions, said management made a
counter-proposal requiring Solid Homes to make an initial payment of P10 million
until 22 May 1984 and the balance payable within the remaining period to repurchase
the properties as provided for under the (Memorandum) x x x. Thereafter, a number
of conferences were held among the corporate officers of both companies wherein
they discussed the payment arrangement of Solid Homes outstanding obligation, x x
x. In a letter dated June 7, 1984 (Exhibit 19), State Financing reiterated the counter-
proposal in its previous letter dated May 17, 1984 to Solid Homes as a way of making
good its account, and at the same time reminded Solid Homes that it has until 27
June 1984 to exercise its right to repurchase the properties pursuant to the terms
and conditions of the (Memorandum), otherwise, it will have to vacate and turn over
the possession of said properties to State Financing. In return, Solid Homes sent to
State Financing a letter dated June 18, 1984 (Exhibits N and 22) containing a copy of
the written offer made by C.L. Alma Jose & Sons, Inc. (Exhibits M and 22-A) to avail
of Solid Homes right to repurchase the V.V. Soliven Towers II pursuant to the terms
of the Dacion En Pago. The letter also contained a request that the repurchase period
under said Dacion En Pago which will expire on June 27, 1984 be extended by sixty
(60) days to enable Solid Homes to comply with the conditions in the offer of Alma
Jose & Sons, Inc. referred to, and thereafter, to avail of the one year period to pay
the balance based on the verbal commitment of State Financings President. x x x
However, on June 26, 1984, a day before the expiry date of its right to repurchase
the properties involved in the (Memorandum) on June 27, 1984, Solid Homes filed
the present action against defendants State Financing and the Register of Deeds for
Metro Manila District II (Pasig), seeking the annulment of said (Memorandum) and
the consequent reinstatement of the mortgages over the same properties; x x x [if
!supportFootnotes][5][endif]
As earlier stated, the trial court held that the Memorandum of Agreement/Dacion En
Pago executed by the parties was valid and binding, and that the registration of said
instrument in the Register of Deeds was in accordance with law and the agreement
of the parties. It disposed of the case thus:
WHEREFORE, this Court hereby renders judgment, as follows:
1. Declaring that the Memorandum of Agreement/Dacion En Pago entered into by
and between plaintiff Solid Homes and defendant State Financing on February 28,
1983 is a valid and binding document which does not violate the prohibition against
pactum commisorium under Art. 2088 of the Civil Code;
2. Declaring that the said Memorandum of Agreement/Dacion En Pago is a true sale
with right of repurchase, and not an equitable mortgage;
3. Declaring that the registration of the said Memorandum of Agreement/Dacion En
Pago with the defendant Register of Deeds in Pasig, Metro Manila by defendant State
Financing on September 15, 1983 is in accordance with law and the agreement of the
parties in the said document; but the annotation of the said document by the said
Register of Deeds on the certificates of title over the properties subject of the
Memorandum of Agreement/Dacion En Pago without any mention of the right of
repurchase and the period thereof, is improper, and said Register of Deeds
cancellation of the certificates of title in the name of Solid Homes over the properties
referred to and issuance of new titles in lieu thereof in the name of State Financing -
during the period of repurchase and without any judicial order - is in violation of Art.
1607 of the Civil Code, which renders said titles null and void;
4. Ordering the defendant State Financing to surrender to the defendant Register of
Deeds in Pasig, Metro Manila for the cancellation thereof, all the certificates of title
issued in its name over the properties subject of the Memorandum of
Agreement/Dacion En Pago, including those titles covering the fully paid
condominium units and the substitute collateral submitted in exchange for said
condominium units;
5. Ordering the said defendant Register of Deeds to cancel all the titles in the name
of State Financing referred to and to reinstate the former titles over the same
properties in the name of Solid Homes, with the proper annotation thereon of the
Memorandum of Agreement/Dacion En Pago together with the right of repurchase
and the period thereof - as provided in said document - and to return the said
reinstated former titles (owners copies) in the name of Solid Homes to State
Financing;
6. Ordering the defendant State Financing to release to plaintiff Solid Homes all the
certificates of title over the fully paid condominium units in the name of Solid Homes,
free from all liens and encumbrances by releasing the mortgage thereon;
7. Granting the plaintiff Solid Homes the opportunity to exercise its right to
repurchase the properties subject of the Memorandum of Agreement/Dacion En Pago
within thirty (30) days from the finality of this Decision, by paying to defendant State
Financing the agreed price of P14,225,178.40 plus all cost of money equivalent to
30% (interest of 14% and penalty of 16% from March 1, 1983) per annum,
registration fees, real estate and documentary stamp taxes and other incidental
expenses incurred by State Financing in the transfer and registration of its ownership
via the Dacion En Pago, as provided in the said document and in pursuance of
Articles 1606 and 1616 of the Civil Code; and
8. Ordering the defendant Register of Deeds in Pasig, Metro Manila - should plaintiff
Solid Homes fail to exercise the abovementioned right to repurchase within 30 days
from the finality of this judgment - to record the consolidation of ownership in State
Financing over the properties subject of the Memorandum of Agreement/Dacion En
Pago in the Registry of Property, in pursuance of this Order, but excluding therefrom
the fully paid condominium units and their corresponding titles to be released by
State Financing.
For lack of merit, the respective claims of both parties for damages, attorneys fees,
expenses of litigation and costs of suit are hereby denied.[if !supportFootnotes][6][endif]
Both parties appealed from the trial courts decision. Solid Homes raised a lone
question contesting the denial of its claim for damages. Such damages allegedly
resulted from the bad faith and malice of State Financing in deliberately failing to
annotate Solid Homes right to repurchase the subject properties in the formers
consolidated titles thereto. As a result of the non-annotation, Solid Homes claimed to
have been prevented from generating funds from prospective buyers to enable it to
comply with the Agreement and to redeem the subject properties.
State Financing, on the other hand, assigned three errors against the RTC decision:
(1) granting Solid Homes a period of thirty (30) days from finality of the judgment
within which to exercise its right of repurchase; (2) ordering Solid Homes to pay only
30% per annum as interest and penalty on the principal obligation, rather than
reasonable rental value from the time possession of the properties was illegally
withheld from State Financing; and (3) failing to order the immediate turnover of the
possession of the properties to State Financing as the purchaser a retro from whom
no repurchase has been made.
As to the lone issue raised by Solid Homes, the Court of Appeals agreed with the trial
court that the failure to annotate the right of repurchase of the vendor a retro is not
by itself an indication of bad faith or malice. State Financing was not legally bound to
cause its annotation, and Solid Homes could have taken steps to protect its own
interests. The evidence shows that after such registration and transfer of titles, State
Financing willingly negotiated with Solid Homes to enable the latter to exercise its
right to repurchase the subject properties,[if !supportFootnotes][7][endif] an act that negates
bad faith.
Anent the first error assigned by State Financing, Respondent Court likewise upheld
the trial court in applying Article 1606, paragraph 3[if !supportFootnotes][8][endif] of the Civil
Code. Solid Homes was not in bad faith in filing the complaint for the declaration of
nullity of the Memorandum of Agreement/Dacion En Pago. There is statutory basis for
petitioners claim that an equitable mortgage existed since it believed that (1) the
price of P14 million was grossly inadequate, considering that the building alone was
allegedly built at a cost of P60 million in 1979 and the lot was valued at P5,000.00
per square meter and (2) it remained in possession of the subject properties.[if
!supportFootnotes][9][endif] Furthermore, Article 1607[if !supportFootnotes][10][endif] of the Civil Code
abolished automatic consolidation of ownership in the vendee a retro upon expiration
of the redemption period by requiring the vendee to institute an action for
consolidation where the vendor a retro may be duly heard. If the vendee succeeds in
proving that the transaction was indeed a pacto de retro, the vendor is still given a
period of thirty days from the finality of the judgment within which to repurchase the
property.[if !supportFootnotes][11][endif]
Respondent Court also affirmed the trial courts imposition of the 30% interest per
annum on top of the redemption price in accordance with paragraph 6 of the parties
Memorandum of Agreement.[if !supportFootnotes][12][endif]
However, Respondent Court of Appeals ruled favorably on State Financings last
assigned error by ordering Solid Homes to deliver possession of the subject
properties to the private respondent, citing jurisprudence that in a sale with pacto de
retro, the vendee shall immediately acquire title over and possession of the real
property sold, subject only to the vendors right of redemption. [if !supportFootnotes][13][endif]
The full text of the dispositive portion of the assailed Decision is as follows:
WHEREFORE, the judgment appealed from is affirmed with the modification that
plaintiff Solid Homes is further ordered to deliver the possession of the subject
property to State Financing.[if !supportFootnotes][14][endif]
The two opposing parties filed their respective motions for reconsideration of the
assailed Decision. Both were denied by said Court for lack of merit. Both parties
thereafter filed separate petitions for review before this Court. In a minute
Resolution[if !supportFootnotes][15][endif] dated December 5, 1994, this Court (Third Division)
denied State Financing Centers petition because of its failure to show that a
reversible error was committed by the appellate court. Its motion for reconsideration
of said resolution was likewise denied for lack of merit. This case disposes only of the
petition filed by Solid Homes, Inc.
Issues
In its petition, Solid Homes repeats its arguments before the Court of Appeals. It
claims damages allegedly arising from the non-annotation of its right of repurchase in
the consolidated titles issued to private respondent. Petitioner reiterates its attack
against the inclusion of 30% interest per annum as part of the redemption price. It
asserts that Article 1616 of the Civil Code authorizes only the return of the (1) price
of the sale, (2) expenses of the contract and any other legitimate payments by
reason of the sale and (3) necessary and useful expenses made on the thing sold.
Considering that the transfer of titles was null and void, it was thus erroneous to
charge petitioner the registration fees, documentary stamp taxes and other incidental
expenses incurred by State Financing in the transfer and registration of the subject
properties via the dacion en pago. Lastly, petitioner argues that there is no need for
the immediate turnover of the properties to State Financing since the same was not
stipulated under their Agreement, and the latters rights were amply protected by the
issuance of new certificates of title in its name.
The Courts Ruling
First Issue: Damages
To resolve the issue of damages, an examination of factual circumstances would be
necessary, a task that is clearly beyond this Courts dominion. It is elementary that in
petitions for review on certiorari, only questions of law may be brought by the parties
and passed upon by this Court. Findings of fact of lower courts are deemed
conclusive and binding upon the Supreme Court except when the findings are
grounded on speculation, surmises or conjectures; when the inference made is
manifestly mistaken, absurd or impossible; when there is grave abuse of discretion in
the appreciation of facts; when the factual findings of the trial and appellate courts
are conflicting; when the Court of Appeals, in making its findings, has gone beyond
the issues of the case and such findings are contrary to the admissions of both
appellant and appellee;[if !supportFootnotes][16][endif] when the judgment of the appellate
court is premised on a misapprehension of facts or when it has failed to notice certain
relevant facts which, if properly considered, will justify a different conclusion; when
the findings of fact are conclusions without citation of specific evidence upon which
they are based; and when findings of fact of the Court of Appeals are premised on
the absence of evidence but are contradicted by the evidence on record. [if
!supportFootnotes][17][endif]
The petitioner has not shown any -- and indeed the Court finds none -- of the above-
mentioned exceptions to warrant a departure from the general rule.
In fact, petitioner has not even bothered to support with evidence its claim for actual,
moral and punitive/nominal damages as well as exemplary damages and attorneys
fees. It is basic that the claim for these damages must each be independently
identified and justified; such claims cannot be dealt with in the aggregate, since they
are neither kindred or analogous terms nor governed by a coincident set of rules. [if
!supportFootnotes][18][endif]
The trial court found, and the Court of Appeals affirmed, that petitioners claim for
actual damages was baseless. Solid Homes utterly failed to prove that respondent
corporation had maliciously and in bad faith caused the non-annotation of petitioners
right of repurchase so as to prevent the latter from exercising such right. On the
contrary, it is admitted by both parties that State Financing informed petitioner of the
registration with the Register of Deeds of Pasig of their Memorandum of
Agreement/Dacion en Pago and the issuance of new certificates of title in the name
of the respondent corporation. Petitioner exchanged communications and held
conferences with private respondent in order to draw a mutually acceptable payment
arrangement for the formers repurchase of the subject properties. A written offer
from another corporation alleging willingness to avail itself of petitioners right of
repurchase was even attached to one of these communications. Clearly, petitioner
was not prejudiced by the non-annotation of such right in the certificates of titles
issued in the name of State Financing. Besides, as the Court of Appeals noted, it was
not the function of respondent corporation to cause said annotation. It was equally
the responsibility of petitioner to protect its own rights by making sure that its right
of repurchase was indeed annotated in the consolidated titles of private respondent.
The only legal transgression of State Financing was its failure to observe the proper
procedure in effecting the consolidation of the titles in its name. But this does not
automatically entitle the petitioner to damages absent convincing proof of malice and
bad faith[if !supportFootnotes][19][endif] on the part of private respondent and actual damages
suffered by petitioner as a direct and probable consequence thereof. In fact, the
evidence proffered by petitioner consist of mere conjectures and speculations with no
factual moorings. Furthermore, such transgression was addressed by the lower courts
when they nullified the consolidation of ownership over the subject properties in the
name of respondent corporation, because it had been effected in contravention of the
provisions of Article 1607[if !supportFootnotes][20][endif] of the Civil Code. Such rulings are
consistent with law and jurisprudence.
Neither can moral damages be awarded to petitioner. Time and again, we have held
that a corporation -- being an artificial person which has no feelings, emotions or
senses, and which cannot experience physical suffering or mental anguish -- is not
entitled to moral damages.[if !supportFootnotes][21][endif]
While the amount of exemplary damages need not be proved, petitioner must show
that he is entitled to moral or actual damages;[if !supportFootnotes][22][endif] but the converse
obtains in the instant case. Award of attorneys fees is likewise not warranted when
moral and exemplary damages are eliminated and entitlement thereto is not
demonstrated by the claimant.[if !supportFootnotes][23][endif]
Lastly, (n)ominal damages are adjudicated in order that a right of the plaintiff, which
has been violated or invaded by the defendant, may be vindicated or recognized, and
not for the purpose of indemnifying the plaintiff for any loss suffered by him. [if
!supportFootnotes][24][endif] As elaborated above and in the decisions of the two lower
courts, no right of petitioner was violated or invaded by respondent corporation.
Second Issue: Redemption Price
Another fundamental principle of procedural law precludes higher courts from
entertaining matters neither alleged in the pleadings nor raised during the
proceedings below, but ventilated for the first time only in a motion for
reconsideration or on appeal.[if !supportFootnotes][25][endif] On appeal, only errors specifically
assigned and properly argued in the brief will be considered, with the exception of
those affecting jurisdiction over the subject matter as well as plain and clerical
errors.[if !supportFootnotes][26][endif]
As stated earlier, the single issue raised by petitioner in its appeal of the RTC decision
to the Court of Appeals concerned only the denial of its claim for damages. Petitioner
succinctly stated such issue in its brief as follows:
I. LONE ASSIGNMENT OF ERROR
The trial court erred in that after having found that the registration of the
Memorandum of Agreement/Dacion en Pago on September 15, 1983 [and the
consequent cancellation of the titles of plaintiff-appellant Solid Homes, Inc. and
issuance in lieu thereof of titles to defendant-appellant State Financing Center, Inc.
(SFCI)] was null and void because of failure to duly annotate the right to repurchase
granted to plaintiff-appellant Solid Homes, Inc. under par. 6 thereof still then
subsisting up to June 28, 1984 and the failure to comply with the provisions of Art.
1607, Civil Code x x x
I[t] nonetheless did not rule that such irregular registration unduly deprived plaintiff-
appellant Solid Homes, Inc. of its right of repurchase and that it further erred in not
having declared that defendant-appellant SFCI liable in favor of said plaintiff-
appellant for damages.[if !supportFootnotes][27][endif]
Petitioner is thus barred from raising a new issue in its appeal before this Court.
Nevertheless, in the interest of substantial justice, we now resolve the additional
question posed with respect to the composition of the redemption price prescribed by
the trial court and affirmed by the Court of Appeals, as follows:
7. Granting the plaintiff Solid Homes the opportunity to exercise its right to
repurchase the properties x x x by paying to defendant State Financing the agreed
price of P14,225,178.40 plus all cost of money equivalent to 30% (interest of 14%
and penalty of 16% from March 1, 1983) per annum, registration fees, real estate
and documentary stamp taxes and other incidental expenses incurred by State
Financing in the transfer and registration of its ownership via the Dacion En Pago, as
provided in the said document and in pursuance of Articles 1606 and 1616 of the Civil
Code;[if !supportFootnotes][28][endif]
Petitioner argues that such total redemption price is in contravention of Art. 1616 of
the Civil Code. We do not, however, find said legal provision to be restrictive or
exclusive, barring additional amounts that the parties may agree upon. Said provision
should be construed together with Art. 1601 of the same Code which provides as
follows:
Art. 1601. Conventional redemption shall take place when the vendor reserves the
right to repurchase the thing sold, with the obligation to comply with the provisions
of article 1616 and other stipulations which may have been agreed upon. (emphasis
supplied)
It is clear, therefore, that the provisions of Art. 1601 require petitioner to comply with
x x x the other stipulations of the Memorandum of Agreement/ Dacion en Pago it
freely entered into with private respondent. The said Memorandums provision on
redemption states:
6. The FIRST PARTY (State Financing) hereby grants the SECOND PARTY (Solid
Homes) the right to repurchase the aforesaid real properties, including the
condominium units and other improvements thereon, within ten (10) months counted
from and after the one hundred eighty (180) days from date of signing hereof at an
agreed price of P14,225,178.40, or as reduced pursuant to par. 5 (d), plus all cost of
money equivalent to 30% per annum, registration fees, real estate and documentary
stamp taxes and other incidental expenses incurred by the FIRST PARTY (State
Financing) in the transfer and registration of its ownership via dacion en pago x x x[if
!supportFootnotes][29][endif] (underscoring supplied)
Contracts have the force of law between the contracting parties who may establish
such stipulations, clauses, terms and conditions as they may want, subject only to the
limitation that their agreements are not contrary to law, morals, customs, public
policy or public order[if !supportFootnotes][30][endif] -- and the above-quoted provision of the
Memorandum does not appear to be so.
Petitioner, however, is right in its observation that the Court of Appeals inclusion of
registration fees, real estate and documentary stamp taxes and other incidental
expenses incurred by State Financing in the transfer and registration of its ownership
(of the subject properties) via dacion en pago was vague, if not erroneous,
considering that such transfer and issuance of the new titles were null and void.
Thus, the redemption price shall include only those expenses relating to the
registration of the dacion en pago, but not the registration and other expenses
incurred in the issuance of new certificates of title in the name of State Financing.

Possession of the Subject Properties During the Redemption Period

The Court of Appeals Decision modified that of the trial court only insofar as it
ordered petitioner to deliver possession of the subject properties to State Financing,
the vendee a retro. We find no legal error in this holding. In a contract of sale with
pacto de retro, the vendee has a right to the immediate possession of the property
sold, unless otherwise agreed upon. It is basic that in a pacto de retro sale, the title
and ownership of the property sold are immediately vested in the vendee a retro,
subject only to the resolutory condition of repurchase by the vendor a retro within
the stipulated period.[if !supportFootnotes][31][endif]

WHEREFORE, the assailed Decision of the Court of Appeals is hereby

AFFIRMED with the MODIFICATION that the redemption price shall not include the
registration and other expenses incurred by State Financing Center, Inc. in the
issuance of new certificates of title in its name, as this was done without the proper
judicial order required under Article 1607 of the Civil Code.

SO ORDERED.

[G.R. No. 146651. January 17, 2002]
RONALDO P. ABILLA and GERALDA A. DIZON, petitioners, vs. CARLOS ANG
GOBONSENG, JR. and THERESITA MIMIE ONG, respondents.
DECISION
YNARES-SANTIAGO, J.:
May the vendors in a sale judicially declared as a pacto de retro exercise the right of
repurchase under Article 1606, third paragraph, of the Civil Code, after they have
taken the position that the same was an equitable mortgage?
This is the legal question raised in this petition for review assailing the January 14,
2001 Order[if !supportFootnotes][1][endif] of the Regional Trial Court of Dumaguete City,
Branch 41, in Civil Case No. 8148, which granted herein respondent spouses the right
to repurchase the seventeen lots[if !supportFootnotes][2][endif] subject of the pacto de retro
sale within thirty (30) days from the finality of the order.
The undisputed facts are as follows:
Petitioner spouses instituted against respondents an action for specific performance,
recovery of sum of money and damages, docketed as Civil Case No. 8148 of the
Regional Trial Court of Dumaguete City, Branch XLII, seeking the reimbursement of
the expenses they incurred in connection with the preparation and registration of two
public instruments, namely a Deed of Sale[if !supportFootnotes][3][endif] and an Option to
Buy.[if !supportFootnotes][4][endif] In their answer, respondents raised the defense that the
transaction covered by the Deed of Sale and Option to Buy, which appears to be a
Deed of Sale with Right of Repurchase, was in truth, in fact, in law, and in legal
construction, a mortgage.[if !supportFootnotes][5][endif]
On October 29, 1990, the trial court ruled in favor of petitioners and declared that the
transaction between the parties was not an equitable mortgage. Citing Villarica v.
Court of Appeals,[if !supportFootnotes][6][endif] it ratiocinated that neither was the said
transaction embodied in the Deed of Sale and Option to Buy a pacto de retro sale,
but a sale giving respondents until August 31, 1983 within which to buy back the
seventeen lots subject of the controversy. The dispositive portion thereof reads:
IN THE LIGHT OF THE FOREGOING, it is the considered opinion of this Court that
plaintiffs have proven by preponderance of evidence their case and judgment is
therefore rendered in their favor as follows:
1. Ordering defendants to pay plaintiffs the sum of P171,483.40 representing the
total expenses incurred by plaintiffs in the preparation and registration of the Deed of
Sale, amount paid to the Bank of Asia and America (IBAA) and capital gains tax with
legal rate of interest from the time the same was incurred by plaintiffs up to the time
payment is made by defendants; P10,000.00 as attorneys fees; P15,000.00 moral
damages; P10,000.00 expenses of litigation and to pay cost.
2. The Philippine National Bank, Dumaguete City Branch is directed to release in favor
of plaintiffs, the spouses Ronaldo P. Abilla and Gerald A. Dizon all the money
deposited with the said bank, representing the rentals of a residential house erected
inside in one of the lots in question;
3. For insufficiency of evidence, defendants counterclaim is ordered dismissed.
SO ORDERED.[if !supportFootnotes][7][endif]
On appeal by respondents, the Court of Appeals ruled that the transaction between
the parties was a pacto de retro sale, and not an equitable mortgage.[if
!supportFootnotes][8][endif] The decretal portion thereof states:
WHEREFORE, the decision appealed from is MODIFIED by deleting the award of
attorneys fees. In other respects the decision of the lower court is AFFIRMED. Costs
against defendant-appellants.
SO ORDERED.[if !supportFootnotes][9][endif]
On November 10, 1997, the Court of Appeals denied the motion for reconsideration
of the foregoing decision.
Respondents filed a petition for review with this Court which was docketed as G.R.
No. 131358; however, the same was dismissed on February 11, 1998, for having
been filed out of time.[if !supportFootnotes][10][endif] The motion for reconsideration thereof
was denied with finality on June 17, 1998.[if !supportFootnotes][11][endif]
Undaunted, respondents filed a second motion for reconsideration, claiming that
since the transaction subject of the controversy was declared a pacto de retro sale by
the Court of Appeals, they can therefore repurchase the property pursuant to the
third paragraph of Article 1606 of the Civil Code. The issue of the applicability of
Article 1606 of the Civil Code was raised by the respondents only in their motion for
clarification with the Court of Appeals, and not before the trial court and on appeal to
the Court of Appeals. Thus, respondents second motion for reconsideration was
denied.[if !supportFootnotes][12][endif] The denial became final and executory on February 8,
1999.[if !supportFootnotes][13][endif]
On February 23, 1999, respondents filed with the trial court in Civil Case No. 8148 an
urgent motion to repurchase the lots in question with tender of payment. The motion
was, however, denied on November 10, 1999[if !supportFootnotes][14][endif] by Judge Ibarra
B. Jaculbe, Jr., who subsequently inhibited himself from the case.
On January 14, 2001, Branch 41 of the Regional Trial Court of Dumaguete City, to
which the case was reraffled, set aside the November 10, 1999 order and granted
respondents motion to repurchase.
Hence, the instant recourse.
At the outset, it must be stressed that it has been respondents consistent
claim that the transaction subject hereof was an equitable mortgage and not a pacto
de retro sale or a sale with option to buy. Even after the Court of Appeals declared
the transaction to be a pacto de retro sale, respondents maintained their view that
the transaction was an equitable mortgage. Seeing the chance to turn the decision in
their favor, however, respondents abandoned their theory that the transaction was
an equitable mortgage and adopted the finding of the Court of Appeals that it was in
fact a pacto de retro sale. Respondents now insist that they are entitled to exercise
the right to repurchase pursuant to the third paragraph of Article 1606 of the Civil
Code, which reads:
However, the vendor may still exercise the right to repurchase within thirty days from
the time final judgment was rendered in a civil action on the basis that the contract
was a true sale with right to repurchase.
The question now is, can respondents avail of the aforecited provision? Following the
theory of the respondents which was sustained by the trial court, the scenario would
be that although respondents failed in their effort to prove that the contract was an
agreement was really one of sale transferring ownership to the vendee, but
accompanied by a reservation to the vendor of the right to repurchase the property
and there are no circumstances that may reasonably be accepted as generating some
honest doubt as to the parties' intention, the proviso is inapplicable. The reason is
quite obvious. If the rule were otherwise, it would be within the power of every
vendor a retro to set at naught a pacto de retro, or resurrect an expired right of
repurchase, by simply instituting an action to reform the contract known to him to be
in truth a sale with pacto de retro into an equitable mortgage. As postulated by the
petitioner, to allow herein private respondents to repurchase the property by applying
said paragraph x x x to the case at bar despite the fact that the stipulated
redemption period had already long expired when they instituted the present action,
would in effect alter or modify the stipulation in the contract as to the definite and
specific limitation of the period for repurchase (2 years from date of sale or only until
June 25, 1958) thereby not simply increasing but in reality resuscitating the expired
right to repurchase x x x and likewise the already terminated and extinguished
obligation to resell by herein petitioner. The rule would thus be made a tool to
spawn, protect and even reward fraud and bad faith, a situation surely never
contemplated or intended by the law.
This Court has already had occasion to rule on the proper interpretation of the
provision in question. In Adorable v. Inacala, where the proofs established that there
could be no honest doubt as to the parties intention, that the transaction was clearly
and definitely a sale with pacto de retro, the Court adjudged the vendor a retro not
to be entitled to the benefit of the third paragraph of Article 1606.[if
!supportFootnotes][16][endif]

equitable mortgage, they could nonetheless still repurchase the property within 30
days from the finality of the judgment declaring the contract to be truly a pacto de
In the case at bar, both the trial court and the Court of Appeals were of the view that
retro sale. However, under the undisputed facts of the case at bar, this cannot be the subject transaction was truly a pacto de retro sale; and that none of the
allowed.
circumstances under Article 1602 of the Civil Code exists to warrant a conclusion that
the transaction subject of the Deed of Sale and Option to Buy was an equitable
In parallel case of Vda. de Macoy v. Court of Appeals,[if
the mortgage. The Court of Appeals correctly noted that if respondents really believed
!supportFootnotes][15][endif]
the petitioners therein raised the defense that the contract was that the transaction was indeed an equitable mortgage, as a sign of good faith, they
not a sale with right to repurchase but an equitable mortgage. They further argued should have, at the very least, consigned with the trial court the amount of
as an alternative defense that even assuming the transaction to be a pacto de retro P896,000.00, representing their alleged loan, on or before the expiration of the right
sale, they can nevertheless repurchase the property by virtue of Article 1606, third to repurchase on August 21, 1983.
paragraph of the Civil Code. It was held that the said provision was inapplicable,
thus:
Clearly, therefore, the declaration of the transaction as a pacto de retro sale will not,
under the circumstances, entitle respondents to the right of repurchase set forth
The application of the third paragraph of Article 1606 is predicated upon the bona under the third paragraph of Article 1606 of the Civil Code.
fides of the vendor a retro. It must appear that there was a belief on his part,
founded on facts attendant upon the execution of the sale with pacto de retro,
WHEREFORE, in view of all the foregoing, the instant petition is GRANTED
honestly and sincerely entertained, that the agreement was in reality a mortgage,
and the January 14, 2001 Order of the Regional Trial Court of Dumaguete City,
one not intended to affect the title to the property ostensibly sold, but merely to give
Branch 41, in Civil Case No. 8148, is REVERSED and SET ASIDE.
it as security for a loan or other obligation. In that event, if the matter of the real
nature of the contract is submitted for judicial resolution, the application of the rule is
meet and proper; that the vendor a retro be allowed to repurchase the property sold SO ORDERED.
within 30 days from rendition of final judgment declaring the contract to be a true
sale with right to repurchase. Conversely, if it should appear that the parties

[G.R. No. 137677. May 31, 2000]
ADALIA B. FRANCISCO, petitioner, vs. ZENAIDA F. BOISER, respondent.
DECISION
MENDOZA, J.:
This is a petition for review of the decision of the Court of Appeals in CA-G.R. CV No.
55518 which affirmed in toto the decision of the Regional Trial Court, Branch 122,
Caloocan City, dismissing petitioners complaint for redemption of property against
respondent. Sdaad
The facts are as follows:
Petitioner Adalia B. Francisco and three of her sisters, Ester, Elizabeth and Adeluisa,
were co-owners of four parcels of registered lands[if !supportFootnotes][1][endif] on which
stands the Ten Commandments Building at 689 Rizal Avenue Extension, Caloocan
City. On August 6, 1979, they sold 1/5 of their undivided share in the subject parcels
of land to their mother, Adela Blas, for P10,000.00, thus making the latter a co-owner
of said real property to the extent of the share sold. Sdaamiso
On August 8, 1986, without the knowledge of the other co-owners, Adela Blas sold
her 1/5 share for P10,000.00 to respondent Zenaida Boiser who is another sister of
petitioner.
On August 5, 1992, petitioner received summons, with a copy of the complaint in Civil
Case No. 15510, filed by respondent demanding her share in the rentals being
collected by petitioner from the tenants of the building. Petitioner then informed
respondent that she was exercising her right of redemption as a co-owner of the
subject property. On August 12, 1992, she deposited the amount of P10,000.00 as
redemption price with the Clerk of Court. This move to redeem the property was
interposed as a permissive counterclaim in Civil Case No. 15510. However, said case
was dismissed after respondent was declared non-suited with the result that
petitioners counterclaim was likewise dismissed. Scncm
On September 14, 1995, petitioner instituted Civil Case No. C-17055 before the
Regional Trial Court in Caloocan City. She alleged that the 30-day period for
redemption under Art. 1623 of the Civil Code had not begun to run against her since
the vendor, Adela Blas, never informed her and the other owners about the sale to
respondent. She learned about the sale only on August 5, 1992, after she received
the summons in Civil Case No. 15510, together with the complaint. Ncmmis
Respondent, on the other hand, contended that petitioner knew about the sale as
early as May 30, 1992, because, on that date, she wrote petitioner a letter [if
!supportFootnotes][2][endif] informing the latter about the sale, with a demand that the
rentals corresponding to her 1/5 share of the subject property be remitted to her.
Said letter was sent with a copy of the Deed of Sale[if !supportFootnotes][3][endif] between
respondent and Adela Blas. On the same date, letters[if !supportFootnotes][4][endif] were
likewise sent by respondent to the tenants of the building, namely, Seiko Service
Center and Glitters Corporation, informing them of the sale and requesting that,
thenceforth, they pay 1/5 of the monthly rentals to respondent. That petitioner
received these letters is proved by the fact that on June 8, 1992, she wrote [if
!supportFootnotes][5][endif] the buildings tenants advising them to disregard respondents
request and continue paying full rentals directly to her. Ncm
On August 19, 1996, the trial court dismissed petitioners complaint for legal
redemption. It ruled that Art. 1623 does not prescribe any particular form of notifying
co-owners about a sale of property owned in common to enable them to exercise
their right of legal redemption.[if !supportFootnotes][6][endif] While no written notice was
given by the vendor, Adela Blas, to petitioner or the other owners, petitioner herself
admitted that she had received respondents letter of May 30, 1992 and was in fact
furnished a copy of the deed evidencing such sale.[if !supportFootnotes][7][endif] The trial
court considered the letter sent by respondent to petitioner with a copy of the deed
of sale as substantial compliance with the required written notice under Art. 1623 of
the New Civil Code.[if !supportFootnotes][8][endif] Consequently, the 30-day period of
redemption should be counted not from August 5, 1992, when petitioner received
summons in Civil Case No. 15510, but at the latest, from June 8, 1992, the date
petitioner wrote the tenants of the building advising them to continue paying rentals
in full to her. Petitioner failed to redeem the property within that period.
Petitioner brought the matter to the Court of Appeals, which, on October 26, 1998,
affirmed the decision of the Regional Trial Court. She moved for reconsideration, but
her motion was denied by the appellate court on February 16, 1999. Hence, this
petition.
The sole issue presented in this appeal is whether the letter of May 30, 1992 sent by
respondent to petitioner notifying her of the sale on August 8, 1986 of Adela Blas 1/5
share of the property to respondent, containing a copy of the deed evidencing such
sale, can be considered sufficient as compliance with the notice requirement of Art.
1623 for the purpose of legal redemption. The trial court and the Court of Appeals
relied on the ruling in Distrito v. Court of Appeals[if !supportFootnotes][9][endif] that Art. 1623
does not prescribe any particular form of written notice, nor any distinctive method
for notifying the redemptioner. They also invoked the rulings in De Conejero v. Court
of Appeals[if !supportFootnotes][10][endif] and Badillo v. Ferrer[if !supportFootnotes][11][endif] that
furnishing the redemptioner with a copy of the deed of sale is equivalent to giving
him the written notice required by law. Oldmiso
On the other hand, petitioner points out that the cited cases are not relevant because
the present case does not concern the particular form in which notice must be given.
Rather, the issue here is whether a notice sent by the vendee may be given in lieu of
that required to be given by the vendor or prospective vendor.[if !supportFootnotes][12][endif]
Art. 1623 of the Civil Code provides:
The right of legal pre-emption or redemption shall not be exercised except within
thirty days from the notice in writing by the prospective
vendor, or by the vendor, as the case maybe. The deed of
sale shall not be recorded in the Registry of Property, unless
accompanied by an affidavit of the vendor that he has given
written notice thereof to all possible redemptioners.
The right of redemption of co-owners excludes that of adjoining owners.
In ruling that the notice given by the vendee was sufficient, the appellate court cited
the case of Etcuban v. Court of Appeals[if !supportFootnotes][13][endif] in which it was held:
Petitioner contends that vendors (his co-heirs) should be the ones to give him written
notice and not the vendees (defendants or private respondent herein) citing the case
of Butte vs. Manuel Uy & Sons, Inc., 4 SCRA 526. Such contention is of no moment.
While it is true that written notice is required by the law (Art. 1623), it is equally true
that the same "Art. 1623 does not prescribe any particular form of notice, nor any
distinctive method for notifying the redemptioner." So long, therefore, as the latter is
informed in writing of the sale and the particulars thereof, the 30 days for redemption
start running, and the redemptioner has no real cause to complain. (De Conejero et
al v. Court of Appeals, et al., 16 SCRA 775). In the Conejero case, we ruled that the
furnishing of a copy of the disputed deed of sale to the redemptioner was equivalent
to the giving of written notice required by law in "a more authentic manner than any
other writing could have done," and that We cannot adopt a stand of having to
sacrifice substance to technicality. More so in the case at bar, where the vendors or
co-owners of petitioner stated under oath in the deeds of sale that notice of sale had
been given to prospective redemptioners in accordance with Art. 1623 of the Civil
Code. "A sworn statement or clause in a deed of sale to the effect that a written
notice of sale was given to possible redemptioners or co-owners might be used to
determine whether an offer to redeem was made on or out of time, or whether there
was substantial compliance with the requirement of said Art. 1623." [if
!supportFootnotes][14][endif]
In Etcuban, notice to the co-owners of the sale of the share of one of them was given
by the vendees through their counterclaim in the action for legal redemption. Despite
the apparent meaning of Art. 1623, it was held in that case that it was "of no
moment" that the notice of sale was given not by the vendor but by the vendees. "So
long as the [co-owner] is informed in writing of the sale and the particulars thereof,
the 30 days for redemption start running, and the redemptioner has no cause to
complain," so it was held. The contrary doctrine of Butte v. Manuel Uy and Sons,
Inc.[if !supportFootnotes][15][endif] was thus overruled sub silencio.
However, in the later case of Salatandol v. Retes,[if !supportFootnotes][16][endif] decided a
year after the Etcuban case, the Court expressly affirmed the ruling in Butte that the
notice required by Art. 1623 must be given by the vendor. In Salatandol, the notice
given to the redemptioner by the Register of Deeds of the province where the subject
land was situated was held to be insuffucient. Resolving the issue of whether such
notice was equivalent to the notice from the vendor required under Art. 1623, this
Court stated:
The appeal is impressed with merit. In Butte vs. Manuel Uy and Sons, Inc., the Court
ruled that Art. 1623 of the Civil Code clearly and expressly
prescribes that the thirty (30) days for making the pre-
emption or redemption are to be counted from notice in
writing by the vendor. The Court said:
" x x x The test of Article 1623 clearly and expressly prescribes that the thirty days
for making the redemption are to be counted from notice in
writing by the vendor. Under the old law (Civil Code of 1889,
Art. 1524), it was immaterial who gave the notice; so long as
the redeeming co-owner learned of the alienation in favor of
the stranger, the redemption period began to run. It is thus
apparent that the Philippine legislature in Article 1623
deliberately selected a particular method of giving notice, and
that method must be deemed exclusive (39 Am. Jur., 237;
Payne vs. State, 12 S.W. (2d) (528). As ruled in Wampher vs.
Lecompte, 150 Atl. 458 (affd. in 75 Law Ed. [U.S.] 275)
Why these provisions were inserted in the statute we are not informed, but we may
assume until the contrary is shown, that a state
of facts in respect thereto existed, which
warranted the legislature in so legislating.
"The reasons for requiring that the notice should be given by the seller, and not by
the buyer, are easily divined. The seller of an undivided
interest is in the best position to know who are his co-owners
that under the law must be notified of the sale. Also, the
notice by the seller removes all doubts as to fact of the sale,
its perfection, and its validity, the notice being a reaffirmation
thereof; so that that party notified need not entertain doubt
that the seller may still contest the alienation. This assurance
would not exist if the notice should be given by the buyer."
In the case at bar, the plaintiffs have not been furnished any written notice of sale or
a copy thereof by Eufemia Omole, the vendor. Said plaintiffs
right to exercise the legal right of preemption or redemption,
given to a co-owner when any one of the other co-owners
sells his share in the thing owned in common to a third
person, as provided for in Article 1623 of the Civil Code, has
not yet accrued.
There was thus a return to the doctrine laid down in Butte. That ruling is sound. In
the first place, reversion to the ruling in Butte is proper. Art. 1623 of the Civil Code is
clear in requiring that the written notification should come from the vendor or
prospective vendor, not from any other person. There is, therefore, no room for
construction. Indeed, the principal difference between Art. 1524 of the former Civil
Code and Art. 1623 of the present one is that the former did not specify who must
give the notice, whereas the present one expressly says the notice must be given by
the vendor. Effect must be given to this change in statutory language. Manikan
August 12, 1992 she deposited the P10,000.00 redemption price. As petitioners
exercise of said right was timely, the same should be given effect. Miso
WHEREFORE, in view of the foregoing, the petition is GRANTED and the decision of
the Court of Appeals is REVERSED and the Regional Trial Court, Branch 122,
Caloocan City is ordered to effect petitioners exercise of her right of legal redemption
in Civil Case No. C-17055. Sppedjo

In the second place, it makes sense to require that the notice required in Art. 1623 SO ORDERED.
be given by the vendor and by nobody else. As explained by this Court through
Justice J.B.L. Reyes in Butte, the vendor of an undivided interest is in the best
position to know who are his co-owners who under the law must be notified of the
sale. It is likewise the notification from the seller, not from anyone else, which can
remove all doubts as to the fact of the sale, its perfection, and its validity, for in a
contract of sale, the seller is in the best position to confirm whether consent to the
essential obligation of selling the property and transferring ownership thereof to the
vendee has been given. Maniks

Now, it is clear that by not immediately notifying the co-owner, a vendor can delay or
even effectively prevent the meaningful exercise of the right of redemption. In the
present case, for instance, the sale took place in 1986, but it was kept secret until
1992 when vendee (herein respondent) needed to notify petitioner about the sale to
demand 1/5 rentals from the property sold. Compared to serious prejudice to
petitioners right of legal redemption, the only adverse effect to vendor Adela Blas and
respondent-vendee is that the sale could not be registered. It is non-binding, only
insofar as third persons are concerned.[if !supportFootnotes][17][endif] It is, therefore, unjust
when the subject sale has already been established before both lower courts and
now, before this Court, to further delay petitioners exercise of her right of legal
redemption by requiring that notice be given by the vendor before petitioner can
exercise her right. For this reason, we rule that the receipt by petitioner of summons
in Civil Case No. 15510 on August 5, 1992 constitutes actual knowledge on the basis
of which petitioner may now exercise her right of redemption within 30 days from
finality of this decision. Manikx

Our ruling is not without precedent. In Alonzo v. Intermediate Appellate Court,[if

!supportFootnotes][18][endif] we dispensed with the need for written notification considering

that the redemptioners lived on the same lot on which the purchaser lived and were
thus deemed to have actual knowledge of the sales. We stated that the 30-day
period of redemption started, not from the date of the sales in 1963 and 1964, but
sometime between those years and 1976, when the first complaint for redemption
was actually filed. For 13 years, however, none of the co-heirs moved to redeem the
property. We thus ruled that the right of redemption had already been extinguished
because the period for its exercise had already expired. Nexold

In the present case, as previously discussed, receipt by petitioner of summons in Civil

Case No. 15510 on August 5, 1992 amounted to actual knowledge of the sale from
which the 30-day period of redemption commenced to run. Petitioner had until
September 4, 1992 within which to exercise her right of legal redemption, but on

G.R. No. L-15752 December 29, 1962
RUPERTO SORIANO, ET AL., plaintiffs-appellees,
vs.
BASILIO BAUTISTA, ET AL., defendants.
BASILIO BAUTISTA and SOFIA DE ROSAS, defendants-appellants.
---------------------------------
G.R. No. L-17457 December 29, 1962
BASILIO BAUTISTA, ET AL., plaintiffs,
BASILIO BAUTISTA and SOFIA DE ROSAS, plaintiffs-appellants,
vs.
RUPERTO SORIANO, ET AL., defendants appellees.
Amado T. Garrovillas, Ananias C. Ona, Norberto A. Ferrera and Pedro N. Belmi for
appellants Basilio Bautista and Sofia de Rosas. Javier and Javier for appellees Ruperto
Soriano, et al.
MAKALINTAL, J.:
The judgment appealed from, rendered on March 10, 1959 by the Court of First
Instance of Rizal, after a joint trial of both cases mentioned in the caption, orders
"the spouses Basilio Bautista and Sofia de Rosas to execute a deed of sale covering
the property in question in favor of Ruperto Soriano and Olimpia de Jesus upon
payment by the latter of P1,650.00 which is the balance of the price agreed upon,
that is P3,900.00, and the amount previously received by way of loan by the said
spouses from the said Ruperto Soriano and Olimpia de Jesus, to pay the sum of
P500.00 by way of attorney's fees, and to pay the costs.
Appellants Basilio Bautista and Sofia de Rosas have adopted in their appeal brief the
following factual findings of the trial court:
Spouses Basilio Bautista and Sofia de Rosas are the absolute and registered owners
of a parcel of land, situated in the municipality of Teresa, province of Rizal, covered
by Original Certificate of Title No. 3905, of the Register of Deeds of Rizal and
particularly described as follow:
A parcel of land (lot No. 4980) of the Cadastral Survey of Teresa; situated in the
municipality of Teresa; bounded on the NE. by Lot No. 5004; on the SE. by Lots Nos.
5003 and 4958; on the SW. by Lot 4949; and the W. and NW by a creek ....
Containing the area of THIRTY THOUSAND TWO HUNDRED TWENTY TWO (30,222)
square meters, more or less. Date of Survey, December 1913-June, 1914. (Full
technical description appears on Original Certificate of Title No. 3905.)lawphil.net
That, on May 30, 1956, the said spouses for and in consideration of the sum of
P1,800, signed a document entitled "Kasulatan Ng Sanglaan" in favor of Ruperto
Soriano and Olimpia de Jesus, under the following terms and conditions:
1. Na ang sanglaang ito ay magpapatuloy lamang hanggang dalawang (2) taon
pasimula sa araw na lagdaan ang kasunduang ito, at magpapalampas ng dalawang
panahong ani o ani agricola.
2. Na ang aanihin ng bukid na isinangla ay mapupunta sa pinagsanglaan bilang
pakinabang ng nabanggit na halagang inutang.
3. Na ang buwis sa pamahalaan ng lupang ito ay ang magbabayad ay ang Nagsangla
o mayari.
4. Na ang lupang nasanglang ito ay hindi na maaaring isangla pang muli sa ibang tao
ng walang pahintulot ang Unang Pinagsanglaan.
5. Na pinagkasunduan din dinatnan na sakaling magkaroon ng kakayahan ang
Pinagsanglaan ay maaaring bilhin ng patuluyan ng lupang nasanglang ito kahit anong
araw sa loob ng taning na dalawang taon ng sanglaan sa halagang Tatlong Libo at
Siam na Raan Piso (P3,900.00), salaping Pilipino na pinagkaisahan.
6. Na sakaling ang pagkakataon na ipinagkaloob ng Nagsangla sa sinundang talata ay
hindi maisagawa ng Pinagsanglaan sa Kawalan ng maibayad at gayon din naman ang
Nagsangla na hindi magbalik ang halagang inutang sa taning na panahon, ang
sanglaan ito ay lulutasin alinsunod sa itinatagubilin ng batas sa bagay-bagay ng
sanglaan, na ito ay ang tinatawag na (FORECLOSURE OF MORTGAGES, JUDICIAL OR
EXTRA JUDICIAL). Maaring makapili ng hakbang ang Pinagsanglaan, alinsunod sa
batas o kaya naman ay pagusapan ng dalawang parte ang mabuting paraan ng
paglutas ng bagay na ito.
That simultaneously with the signing of the aforementioned deed, the spouses Basilio
Bautista and Sofia de Rosas transferred the possession of the said land to Ruperto
Soriano and Olimpia de Jesus who have been and are still in possess of the said
property and have since that date been and cultivating the said land and have
enjoyed and are still enjoying the produce thereof to the exclusion of all other
persons. Sometimes after May 30, 1956, the spouses Basilio Bautista and Sofia de
Rosas received from Ruperto Soriano and Olimpia de Jesus, the sum of P450.00
pursuant to the condition agreed upon in the aforementioned document for which no
receipt issued and which was returned by the spouses sometime on May 31, 1958.
On May 13, 1958, a certain Atty. Angel O. Ver wrote a letter to the spouses Bautista
whose letter has been marked Annex 'B' of the stipulation of facts informing the said
spouses that his clients Ruperto Soriano and Olimpia de Jesus have decided to buy
the parcel of land in question pursuant to paragraph 5 of the document in question,
Annex "A".
The spouses inspite of the receipt of the letter refused comply with the demand
contained therein. On May 31, 1958, Ruperto Soriano and Olimpia de Jesus filed
before this Court Civil Case No. 5023, praying that plaintiffs be allowed to consign or
deposit with the Clerk of Court the sum of P1,650 as the balance of the purchase
price of the parcel of land question and that after due hearing, judgment be rendered
considering the defendants to execute an absolute deed of sale of said property in
their favor, plus damages.
On June 9, 1958, spouses Basilio Bautista and Sofia Rosas filed a complaint against
Ruperto Soriano and Olimpia de Jesus marked as Annexed 'B' of the Stipulation of
Facys, which case after hearing was dismissed for lack of jurisdiction On August 5,
1959, the spouses Bautista and De Rosas again filed a case in the Court of First
Instance against Soriano and De Jesus asking this Court to order the defendants to
accept the payment of the principal obligation and release the mortgage and to make
an accounting of the harvest for the harvest seasons (1956-1957). The two cases,
were by agreement of the parties assigned to one branch so that they can be tried
jointly.
P3,900.00, should the option be exercised. The mortgagors' promise was in the
nature of a continuing offer, non-withdrawable during a period of two years, which
upon acceptance by the mortgagees gave rise to a perfected contract of purchase
and sale. Appellants cite the case of Iigo vs. Court of Appeals, L-5572, O.G. No. 11,
5281, where we held that a stipulation in a contract of mortgage to sell the property
to the mortgagee does not bind the same but creates only a personal obligation on
the part of the mortgagor. The citation instead of sustaining appellant's position,
confirms that of appellees, who are not here enforcing any real right to the disputed
land but are rather seeking to obtain specific performance of a personal obligation,
namely, the execution of a deed of sale for the price agreed upon, the corresponding
amount to cover which was duly deposited in court upon the filing of the complaint.
Reference is made in appellants' brief to the fact that they tendered the sum of
P1,800.00 to redeem mortgage before they filed their complaint in civil case No. 99 in
the Justice of the Peace Court of Morong, Rizal. That tender was ineffective for the
purpose intended. In the first place it must have been made after the option to
purchase had been exercised by appellees (Civil Case No. 99 was filed on June 9,
1958, only to be dismissed for lack of jurisdiction); and secondly, appellants' to
redeem could be defeated by appellees' preemptive right to purchase within the
period of two years from May 30, 1956. As already noted, such right was availed of
appellants were accordingly notified by letter dated May 13, 1958, which was
received by them on the following May 22. Offer and acceptance converged and gave
to a perfected and binding contract of purchase and sale.

The principal issue in this case is whether, having seasonably advised appellants that The judgment appealed from is affirmed, with costs.
they had decided to be the land in question pursuant to paragraph 5 of the
instrument of mortgage, appellees are entitled to special performance consisting of
the execution by appellants the corresponding deed of sale. As translated, paragraph
5 states: "That it has likewise been agreed that if the financial condition of the
mortgagees will permit, they may purchase said land absolutely on any date within
the two-year term of this mortgage at the agreed price of P3,900.00."

Appellants contend that, being mortgagors, they can not be deprived of the right to
redeem the mortgaged property, because such right is inherent in and inseparable
from this kind of contract. The premise of the contention is not entirely accurate.
While the transaction is undoubtedly a mortgage and contains the customary
stipulation concerning redemption, it carries the added special provision aforequoted,
which renders the mortgagors' right to redeem defeasible at the election of the
mortgagees. There is nothing illegal or immoral in this. It is simply an option to buy,
sanctioned by Article 1479 of the Civil Code, which states: "A promise to buy and sell
a determinate thing for a price certain is reciprocally demandable. An accepted
unilateral promise to buy or to sell a determinate thing for a price certain is binding
upon the promissor if the promise is supported by a consideration distinct from the
price."

In this case the mortgagor's promise to sell is supported by the same consideration
as that of the mortgage itself, which is distinct from that which would support the
sale, an additional amount having been agreed upon to make up the entire price of

G.R. No. 71694 August 16, 1991
NYCO SALES CORPORATION, petitioner,
vs.
BA FINANCE CORPORATION, JUDGE ROSALIO A. DE LEONREGIONAL
TRIAL COURT, BR. II, INTERMEDIATE APPELLATE COURT, FIRST CIVIL
CASES DIVISION, respondents.
ABC Law Offices for petitioner.Valera, Urmeneta & Associates for private respondent.
PARAS, J.:
In this petition for review on certiorari, petitioner challenges the April 22, 1985
decision* and the July 16, 1985 resolution* of the then Intermediate Appellate Court
in AC-G.R. CV No. 02553 entitled "BA Finance Corporation v. Nyco Sales Corporation,
et al." which affirmed with modification the July 20, 1983 decision** of the Regional
Trial Court, National Capital Region, Manila, Branch II in the same case docketed as
Civil Case No. 125909 ordering petitioner to pay respondent the amount of
P60,000.00 as principal obligation plus corresponding interest, the sum of P10,000.00
as and for, attomey's fees and 1/3 of the costs of suit.
It appears on record that petitioner Nyco Sales Corporation (hereinafter referred to as
Nyco) whose president and general manager is Rufino Yao, is engaged in the
business of selling construction materials with principal office in Davao City.
Sometime in 1978, the brothers Santiago and Renato Fernandez (hereinafter referred
to as the Fernandezes), both acting in behalf of Sanshell Corporation, approached
Rufino Yao for credit accommodation. They requested Nyco, thru Yao, to grant
Sanshell discounting privileges which Nyco had with BA Finance Corporation
(hereinafter referred to as BA Finance). Yao apparently acquiesced, hence on or
about November 15, 1978, the Fernandezes went to Yao for the purpose of
discounting Sanshell's post-dated check which was a BPI-Davao Branch Check No.
499648 dated February 17, 1979 for the amount of P60,000.00. The said check was
payable to Nyco. Following the discounting process agreed upon, Nyco, thru Yao,
endorsed the check in favor of BA Finance. Thereafter, BA Finance issued a check
payable to Nyco which endorsed it in favor of Sanshell. Sanshell then made use of
and/or negotiated the check. Accompanying the exchange of checks was a Deed of
Assignment executed by Nyco in favor of BA Finance with the conformity of Sanshell.
Nyco was represented by Rufino Yao, while Sanshell was represented by the
Fernandez brothers. Under the said Deed, the subject of the discounting was the
aforecited check (Rollo, pp- 26-28). At the back thereof and of every deed of
assignment was the Continuing Suretyship Agreement whereby the Fernandezes
unconditionally guaranteed to BA Finance the full, faithful and prompt payment and
discharge of any and all indebtedness of Nyco (Ibid., pp. 36, 46). The BPI check,
however, was dishonored by the drawee bank upon presentment for payment. BA
Finance immediately reported the matter to the Fernandezes who thereupon issued a
substitute check dated February 19,1979 for the same amount in favor of BA Finance.
It was a Security Bank and Trust Company check bearing the number 183157, which
was again dishonored when it was presented for payment. Despite repeated
demands, Nyco and the Fernandezes failed to settle the obligation with BA Finance,
thus prompting the latter to institute an action in court (Ibid., p 28). Nyco and the
Fernandezes, despite having been served with summons and copies of the complaint,
failed to file their answer and were consequently declared in default. On May 16,
1980, the lower court ruled in favor of BA Finance ordering them to pay the former
jointly and severally, the sum of P65,536.67 plus 14% interest per annum from July
1, 1979 and attorney's fees in the amount of P3, 000. 00 as well as the costs of suit
(Rollo, pp. 51-52). Nyco, however, moved to set aside the order of default, to have
its answer admitted and to be able to implead Sanshell. The prayer was granted
through an order dated June 23, 1980, wherein the decision of the court was set
aside only as regards Nyco. Trial ensued once more until the court reached a second
decision which states:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendant Nyco Sales Corporation by ordering the latter to pay the former the
following:
1) P60,000.00 as principal obligation, plus interest thereon at the rate of 14% per
annum from February 1, 1979 until fully paid;
2) The amount of P100,000.00 as and for attorney's fees; and
3) One-third (1/3) of the costs of this suit.
With respect to defendants Santiago and Renato Fernandez, the decision of May 16,
1980 stands.
The cross-claim of defendant Nyco Sales Corporation against codefendants Santiago
B. Fernandez and Renato B. Fernandez is hereby denied, as there is no showing that
Nyco's Answer with cross-claim dated May 29, 1980 was ever received by said
Fernandez brothers, even as it is noted that the latter have not been declared in
default with respect to said cross-claim, nor were evidence adduced in connection
therewith.
As to the would-be litigant Sanshell Construction and Development Corporation,
defendant Nyco Sales Corporation did not properly implead said corporation which
should have been by way of a third-party complaint instead of a mere cross-claim.
The same observations are noted as regard this cross-claim against Sanshell as those
made with respect to the Fernandez brothers.
SO ORDERED.
On appeal, the appellate court also upheld BA Finance but modified the lower court's
decision by ordering that the interest should run from February 19, 1979 until paid
and not from February 1, 1979. Nyco's subsequent motion for reconsideration was
denied (Ibid., pp. 33, 62). Hence, the present recourse.
The crux of the controversy is whether or not the assignor is liable to its assignee for
its dishonored checks.
For its defense, Nyco anchors its arguments on the following premises: a) that the
appellate court erred in affirming its liability for the BPI check despite a similar finding
of liability for the SBTC check rendered by the same lower court; b) that it was
actually discharged of its liability over the SBTC check when BA Finance failed to give
it a notice of dishonor; c) that there was novation when BA Finance accepted the
SBTC check in replacement of the BPI check; and d) that it cannot be held liable for
its Presidents unauthorized acts.
The petition is devoid of merit.
An assignment of credit is the process of transferring the right of the assignor to the
assignee, who would then be allowed to proceed against the debtor. It may be done
either gratuitously or generously, in which case, the assignment has an effect similar
to that of a sale.
According to Article 1628 of the Civil Code, the assignor-vendor warrants both the
credit itself (its existence and legality) and the person of the debtor (his solvency), if
so stipulated, as in the case at bar. Consequently, if there be any breach of the above
warranties, the assignor-vendor should be held answerable therefor. There is no
question then that the assignor-vendor is indeed liable for the invalidity of whatever
he as signed to the assignee-vendee.
Considering now the facts of the case at bar, it is beyond dispute that Nyco executed
a deed of assignment in favor of BA Finance with Sanshell Corporation as the debtor-
obligor. BA Finance is actually enforcing said deed and the check covered thereby is
merely an incidental or collateral matter. This particular check merely evidenced the
credit which was actually assigned to BA Finance. Thus, the designation is immaterial
as it could be any other check. Both the lower and the appellate courts recognized
this and so it is utterly misplaced to say that Nyco is being held liable for both the BPI
and the SBTC checks. It is only what is represented by the said checks that Nyco is
being asked to pay. Indeed, nowhere in the dispositive parts of the decisions of the
courts can it be gleaned that BA Finance may recover from the two checks.
Nyco's pretension that it had not been notified of the fact of dishonor is belied not
only by the formal demand letter but also by the findings of the trial court that Rufino
Yao of Nyco and the Fernandez Brothers of Sanshell had frequent contacts before,
during and after the dishonor (Rollo, p. 40). More importantly, it fails to realize that
for as long as the credit remains outstanding, it shall continue to be liable to BA
Finance as its assignor. The dishonor of an assigned check simply stresses its liability
and the failure to give a notice of dishonor will not discharge it from such liability.
This is because the cause of action stems from the breach of the warranties
embodied in the Deed of Assignment, and not from the dishonoring of the check
alone (See Art. 1628, Civil Code).
Novation is the third defense set up by petitioner Nyco.1wphi1 It insists that
novation took place when BA Finance accepted the SBTC check in replacement of the
BPI cheek. Such is manifestly untenable.
There are only two ways which indicate the presence of novation and thereby
produce the effect of extinguishing an obligation by another which substitutes the
same. First, novation must be explicitly stated and declared in unequivocal terms as
novation is never presumed (Mondragon v. Intermediate Appellate Court, G.R. No.
71889, April 17, 1990; Caneda Jr. v. Court of Appeals, G.R. No. 81322, February 5,
1990). Secondly, the old and the new obligations must be incompatible on every
point. The test of incompatibility is whether or not the two obligations can stand
together, each one having its independent existence If they cannot, they are
incompatible and the latter obligation novates the first (Mondragon v. Intermediate
Appellate Court, supra; Caneda Jr. v. Court of Appeals, supra). In the instant case,
there was no express agreement that BA Finance's acceptance of the SBTC check will
discharge Nyco from liability. Neither is there incompatibility because both checks
were given precisely to terminate a single obligation arising from Nyco's sale of credit
to BA Finance. As novation speaks of two distinct obligations, such is inapplicable to
this case.
Finally, Nyco disowns its President's acts claiming that it never authorized Rufino Yao
(Nyco's President) to even apply to BA Finance for credit accommodation. It supports
its argument with the fact that it did not issue a Board resolution giving Yao such
authority. However, the very evidence on record readily belies Nyco's contention. Its
corporate By-Laws clearly provide for the powers of its President, which include, inter
alia, executing contracts and agreements, borrowing money, signing, indorsing and
delivering checks, all in behalf of the corporation. Furthermore, the appellate court
correctly adopted the lower court's observation that there was already a previous
transaction of discounting of checks involving the same personalities wherein any
enabling resolution from Nyco was dispensed with and yet BA Finance was able to
collect from Nyco and Sanshell was able to discharge its own undertakings. Such
effectively places Nyco under estoppel in pais which arises when one, by his acts,
representations or admissions, or by his silence when he ought to speak out,
intentionally or through culpable negligence, induces another to believe certain facts
to exist and such other rightfully relies and acts on such belief, so that he will be
prejudiced if the former is permitted to deny the existence of such facts (Panay
Electric Co., Inc. v. Court of Appeals, G.R. No. 81939, June 29,1989). Nyco remained
silent in the course of the transaction and spoke out only later to escape liability. This
cannot be countenanced. Nyco is estopped from denying Rufino Yao's authority as far
as the latter's transactions with BA Finance are concerned.
PREMISES CONSIDERED, the decision appealed from is AFFIRMED.
[G.R. No. 142838. August 9, 2001]
ABELARDO B. LICAROS, petitioner, vs. ANTONIO P. GATMAITAN,
respondent.
DECISION
GONZAGA-REYES, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court.
The petition seeks to reverse and set aside the Decision[if !supportFootnotes][1][endif] dated
February 10, 2000 of the Court of Appeals and its Resolution [if !supportFootnotes][2][endif]
dated April 7, 2000 denying petitioners Motion for Reconsideration thereto. The
appellate court decision reversed the Decision[if !supportFootnotes][3][endif] dated November
11, 1997 of the Regional Trial Court of Makati, Branch 145 in Civil Case No. 96-1211.
The facts of the case, as stated in the Decision of the Court of Appeals dated
February 10, 2000, are as follows:
The Anglo-Asean Bank and Trust Limited (Anglo-Asean, for brevity), is a private bank
registered and organized to do business under the laws of the Republic of Vanuatu
but not in the Philippines. Its business consists primarily in receiving fund placements
by way of deposits from institutions and individual investors from different parts of
the world and thereafter investing such deposits in money market placements and
potentially profitable capital ventures in Hongkong, Europe and the United States for
the purpose of maximizing the returns on those investments.
Enticed by the lucrative prospects of doing business with Anglo-Asean, Abelardo
Licaros, a Filipino businessman, decided to make a fund placement with said bank
sometime in the 1980s. As it turned out, the grim outcome of Licaros foray in
overseas fund investment was not exactly what he envisioned it to be. More
particularly, Licaros, after having invested in Anglo-Asean, encountered tremendous
and unexplained difficulties in retrieving, not only the interest or profits, but even the
very investments he had put in Anglo-Asean.
Confronted with the dire prospect of not getting back any of his investments, Licaros
then decided to seek the counsel of Antonio P. Gatmaitan, a reputable banker and
investment manager who had been extending managerial, financial and investment
consultancy services to various firms and corporations both here and abroad. To
Licaros relief, Gatmaitan was only too willing enough to help. Gatmaitan voluntarily
offered to assume the payment of Anglo-Aseans indebtedness to Licaros subject to
certain terms and conditions. In order to effectuate and formalize the parties
respective commitments, the two executed a notarized MEMORANDUM OF
AGREEMENT on July 29, 1988 (Exh. B; also Exhibit 1), the full text of which reads:
Memorandum of Agreement
KNOW ALL MEN BY THESE PRESENTS:
This MEMORANDUM OF AGREEMENT made and executed this 29th day of July 1988,
at Makati by and between:
ABELARDO B. LICAROS, Filipino, of legal age and holding office at Concepcion
Building, Intramuros, Manila hereinafter referred to as THE PARTY OF THE FIRST
PART,
and
ANTONIO P. GATMAITAN, Filipino, of legal age and residing at 7 Mangyan St., La
Vista, hereinafter referred to as the PARTY OF THE SECOND PART,
WITNESSETH THAT:
WHEREAS, ANGLO-ASEAN BANK & TRUST, a company incorporated by the Republic
of Vanuatu, hereinafter referred to as the OFFSHORE BANK, is indebted to the PARTY
OF THE FIRST PART in the amount of US dollars; ONE HUNDRED FIFTY THOUSAND
ONLY (US$150,000) which debt is now due and demandable.
WHEREAS, the PARTY OF THE FIRST PART has encountered difficulties in securing
full settlement of the said indebtedness from the OFFSHORE BANK and has sought a
business arrangement with the PARTY OF THE SECOND PART regarding his claims;
WHEREAS, the PARTY OF THE SECOND PART, with his own resources and due to his
association with the OFFSHORE BANK, has offered to the PARTY OF THE FIRST PART
to assume the payment of the aforesaid indebtedness, upon certain terms and
conditions, which offer, the PARTY OF THE FIRST PART has accepted;
WHEREAS, the parties herein have come to an agreement on the nature, form and
extent of their mutual prestations which they now record herein with the express
conformity of the third parties concerned;
NOW, THEREFORE, for and in consideration of the foregoing and the mutual
covenants stipulated herein, the PARTY OF THE FIRST PART and the PARTY OF THE
SECOND PART have agreed, as they do hereby agree, as follows:
1. The PARTY OF THE SECOND PART hereby undertakes to pay the PARTY OF THE
FIRST PART the amount of US DOLLARS ONE HUNDRED FIFTY THOUSAND
((US$150,000) payable in Philippine Currency at the fixed exchange rate of Philippine
Pesos 21 to US$1 without interest on or before July 15, 1993.
For this purpose, the PARTY OF THE SECOND PART shall execute and deliver a non
negotiable promissory note, bearing the aforesaid material consideration in favor of
the PARTY OF THE FIRST PART upon execution of this MEMORANDUM OF
AGREEMENT, which promissory note shall form part as ANNEX A hereof.
2. For and in consideration of the obligation of the PARTY OF THE SECOND PART, the
PARTY OF THE FIRST does hereby;
a. Sell, assign, transfer and set over unto the PARTY OF THE SECOND PART that
certain debt now due and owing to the PARTY OF THE FIRST PART by the
OFFSHORE BANK, to the amount of US Dollars One Hundred Fifty Thousand plus
interest due and accruing thereon;
b. Grant the PARTY OF THE SECOND PART the full power and authority, for his own
use and benefit, but at his own cost and expense, to demand, collect, receive,
compound, compromise and give acquittance for the same or any part thereof, and in
the name of the PARTY OF THE FIRST PART, to prosecute, and withdraw any suit or
proceedings therefor;
c. Agree and stipulate that the debt assigned herein is justly owing and due to the
PARTY OF THE FIRST PART from the said OFFSHORE BANK, and that the PARTY OF
THE FIRST PART has not done and will not cause anything to be done to diminish or
discharge said debt, or to delay or prevent the PARTY OF THE SECOND PART from
collecting the same; and;
d. At the request of the PARTY OF SECOND PART and the latters own cost and
expense, to execute and do all such further acts and deeds as shall be reasonably
necessary for proving said debt and to more effectually enable the PARTY OF THE
SECOND PART to recover the same in accordance with the true intent and meaning
of the arrangements herein.
IN WITNESS WHEREOF, the parties have caused this MEMORANDUM OF AGREEMENT
to be signed on the date and place first written above.
Sgd. Sgd.
ABELARDO B. LICAROS ANTONIO P. GATMAITAN
PARTY OF THE FIRST PART PARTY OF THE FIRST PART
WITH OUR CONFORME:
ANGLO-ASEAN BANK & TRUST
BY: (Unsigned)
SIGNED IN THE PRESENCE OF:
Sgd. (illegible)
________________________ ________________________
Conformably with his undertaking under paragraph 1 of the aforequoted agreement,
Gatmaitan executed in favor of Licaros a NON-NEGOTIABLE PROMISSORY NOTE
WITH ASSIGNMENT OF CASH DIVIDENDS (Exhs. A; also Exh. 2), which
promissory note, appended as Annex A to the same Memorandum of Agreement,
states in full, thus
NON-NEGOTIABLE PROMISSORY NOTE
WITH ASSIGNMENT OF CASH DIVIDENDS
This promissory note is Annex A of the Memorandum of Agreement executed
between Abelardo B. Licaros and Antonio P. Gatmaitan, on ______ 1988 at Makati,
Philippines and is an integral part of said Memorandum of Agreement.
P3,150,000.
On or before July 15, 1993, I promise to pay to Abelardo B. Licaros the sum of
Philippine Pesos 3,150,000 (P3,150,000) without interest as material consideration for
the full settlement of his money claims from ANGLO-ASEAN BANK, referred to in the
Memorandum of Agreement as the OFFSHORE BANK.
As security for the payment of this Promissory Note, I hereby ASSIGN, CEDE and
TRANSFER, Seventy Percent (70%) of ALL CASH DIVIDENDS, that may be due or
owing to me as the registered owner of ___________________ (__________) shares
of stock in the Prudential Life Realty, Inc.
This assignment shall likewise include SEVENTY PERCENT (70%) of cash dividends
that may be declared by Prudential Life Realty, Inc. and due or owing to Prudential
Life Plan, Inc., of which I am a stockholder, to the extent of or in proportion to my
aforesaid shareholding in Prudential Life Plan, Inc., the latter being the holding
company of Prudential Life Realty, Inc.
In the event that I decide to sell or transfer my aforesaid shares in either or both the
Prudential Life Plan, Inc. or Prudential Life Realty, Inc. and the Promissory Note
remains unpaid or outstanding, I hereby give Mr. Abelardo B. Licaros the first option
to buy the said shares.
Manila, Philippines
July _____, 1988
(SGD.)
Antonio P. Gatmaitan
7 Mangyan St., La Vista, QC
Signed in the Presence of
(SGD.)
_________________ __________________
Francisco A. Alba
President, Prudential Life Plan, Inc..
Thereafter, Gatmaitan presented to Anglo-Asean the Memorandum of Agreement
earlier executed by him and Licaros for the purpose of collecting the latters
placement thereat of U.S.$150,000.00. Albeit the officers of Anglo-Asean allegedly
committed themselves to look into [this matter], no formal response was ever made
by said bank to either Licaros or Gatmaitan. To date, Anglo-Asean has not acted on
Gatmaitans monetary claims.
Evidently, because of his inability to collect from Anglo-Asean, Gatmaitan did not
bother anymore to make good his promise to pay Licaros the amount stated in his
promissory note (Exh. A; also Exh. 2). Licaros, however, thought differently. He felt
that he had a right to collect on the basis of the promissory note regardless of the
outcome of Gatmaitan's recovery efforts. Thus, in July 1996, Licaros, thru counsel,
addressed successive demand letters to Gatmaitan (Exhs. C and D), demanding
payment of the latters obligations under the promissory note. Gatmaitan, however,
did not accede to these demands.
Hence, on August 1, 1996, in the Regional Trial Court at Makati, Licaros filed the
complaint in this case. In his complaint, docketed in the court below as Civil Case No.
96-1211, Licaros prayed for a judgment ordering Gatmaitan to pay him the following:
a) Principal Obligation in the amount of Three Million Five Hundred Thousand Pesos
(P3,500,000.00);
b) Legal interest thereon at the rate of six (6%) percent per annum from July 16,
1993 when the amount became due until the obligation is fully paid;
c) Twenty percent (20%) of the amount due as reasonable attorneys fees;
d) Costs of the suit.[if !supportFootnotes][4][endif]
After trial on the merits, the court a quo rendered judgment in favor of
petitioner Licaros and found respondent Gatmaitan liable under the Memorandum of
Agreement and Promissory Note for P3,150,000.00 plus 12% interest per annum
from July 16, 1993 until the amount is fully paid. Respondent was likewise ordered to
pay attorneys fees of P200,000.00.[if !supportFootnotes][5][endif]
Respondent Gatmaitan appealed the trial courts decision to the Court of
Appeals. In a decision promulgated on February 10, 2000, the appellate court
reversed the decision of the trial court and held that respondent Gatmaitan did not at
any point become obligated to pay to petitioner Licaros the amount stated in the
promissory note. In a Resolution dated April 7, 2000, the Court of Appeals denied
petitioners Motion for Reconsideration of its February 10, 2000 Decision.
Hence this petition for review on certiorari where petitioner prays for the
reversal of the February 10, 2000 Decision of the Court of Appeals and the
reinstatement of the November 11, 1997 decision of the Regional Trial Court.
The threshold issue for the determination of this Court is whether the
Memorandum of Agreement between petitioner and respondent is one of assignment
of credit or one of conventional subrogation. This matter is determinative of whether
or not respondent became liable to petitioner under the promissory note considering
that its efficacy is dependent on the Memorandum of Agreement, the note being
merely an annex to the said memorandum.[if !supportFootnotes][6][endif]
An assignment of credit has been defined as the process of transferring the
right of the assignor to the assignee who would then have the right to proceed
against the debtor. The assignment may be done gratuitously or onerously, in which
case, the assignment has an effect similar to that of a sale.[if !supportFootnotes][7][endif]
On the other hand, subrogation has been defined as the transfer of all the
rights of the creditor to a third person, who substitutes him in all his rights. It may
either be legal or conventional. Legal subrogation is that which takes place without
agreement but by operation of law because of certain acts. Conventional subrogation
is that which takes place by agreement of parties.[if !supportFootnotes][8][endif]
The general tenor of the foregoing definitions of the terms subrogation and
assignment of credit may make it seem that they are one and the same which they
are not. A noted expert in civil law notes their distinctions thus:
Under our Code, however, conventional subrogation is not identical to assignment of
credit. In the former, the debtors consent is necessary; in the latter it is not required.
Subrogation extinguishes the obligation and gives rise to a new one; assignment
refers to the same right which passes from one person to another. The nullity of an
old obligation may be cured by subrogation, such that a new obligation will be
perfectly valid; but the nullity of an obligation is not remedied by the assignment of
the creditors right to another.[if !supportFootnotes][9][endif]
 For our purposes, the crucial distinction deals with the necessity of the
consent of the debtor in the original transaction. In an assignment of credit, the
consent of the debtor is not necessary in order that the assignment may fully produce
legal effects.[if !supportFootnotes][10][endif] What the law requires in an assignment of credit
is not the consent of the debtor but merely notice to him as the assignment takes
effect only from the time he has knowledge thereof. [if !supportFootnotes][11][endif] A creditor
may, therefore, validly assign his credit and its accessories without the debtors
consent.[if !supportFootnotes][12][endif] On the other hand, conventional subrogation requires
an agreement among the three parties concerned the original creditor, the debtor,
and the new creditor. It is a new contractual relation based on the mutual agreement
among all the necessary parties. Thus, Article 1301 of the Civil Code explicitly states
that (C)onventional subrogation of a third person requires the consent of the original
parties and of the third person.
The trial court, in finding for the petitioner, ruled that the Memorandum of
Agreement was in the nature of an assignment of credit. As such, the court a quo
held respondent liable for the amount stated in the said agreement even if the parties
thereto failed to obtain the consent of Anglo-Asean Bank. On the other hand, the
appellate court held that the agreement was one of conventional subrogation which
necessarily requires the agreement of all the parties concerned. The Court of Appeals
thus ruled that the Memorandum of Agreement never came into effect due to the
failure of the parties to get the consent of Anglo-Asean Bank to the agreement and,
as such, respondent never became liable for the amount stipulated.
We agree with the finding of the Court of Appeals that the Memorandum of
Agreement dated July 29, 1988 was in the nature of a conventional subrogation
which requires the consent of the debtor, Anglo-Asean Bank, for its validity. We note
with approval the following pronouncement of the Court of Appeals:
Immediately discernible from above is the common feature of contracts involving
conventional subrogation, namely, the approval of the debtor to the subrogation of a
third person in place of the creditor. That Gatmaitan and Licaros had intended to
treat their agreement as one of conventional subrogation is plainly borne by a
stipulation in their Memorandum of Agreement, to wit:
WHEREAS, the parties herein have come to an agreement on the nature, form and
extent of their mutual prestations which they now record herein with the express
conformity of the third parties concerned (emphasis supplied),
which third party is admittedly Anglo-Asean Bank.
Had the intention been merely to confer on appellant the status of a mere assignee
of appellees credit, there is simply no sense for them to have stipulated in their
agreement that the same is conditioned on the express conformity thereto of Anglo-
Asean Bank. That they did so only accentuates their intention to treat the agreement
as one of conventional subrogation. And it is basic in the interpretation of contracts
that the intention of the parties must be the one pursued (Rule 130, Section 12,
Rules of Court).
Given our finding that the Memorandum of Agreement (Exh. B; also Exh. 1), is not
one of assignment of credit but is actually a conventional subrogation, the next
question that comes to mind is whether such agreement was ever perfected at all.
Needless to state, the perfection or non-perfection of the subject agreement is of
utmost relevance at this point. For, if the same Memorandum of Agreement was
actually perfected, then it cannot be denied that Gatmaitan still has a subsisting
commitment to pay Licaros on the basis of his promissory note. If not, Licaros suit for
collection must necessarily fail.
Here, it bears stressing that the subject Memorandum of Agreement expressly
requires the consent of Anglo-Asean to the subrogation. Upon whom the task of
securing such consent devolves, be it on Licaros or Gatmaitan, is of no significance.
What counts most is the hard reality that there has been an abject failure to get
Anglo-Aseans nod of approval over Gatmaitans being subrogated in the place of
Licaros. Doubtless, the absence of such conformity on the part of Anglo-Asean, which
is thereby made a party to the same Memorandum of Agreement, prevented the
agreement from becoming effective, much less from being a source of any cause of
action for the signatories thereto.[if !supportFootnotes][13][endif]
Aside for the whereas clause cited by the appellate court in its decision, we
likewise note that on the signature page, right under the place reserved for the
signatures of petitioner and respondent, there is, typewritten, the words WITH OUR
CONFORME. Under this notation, the words ANGLO-ASEAN BANK AND TRUST were
written by hand.[if !supportFootnotes][14][endif] To our mind, this provision which
contemplates the signed conformity of Anglo-Asean Bank, taken together with the
aforementioned preambulatory clause leads to the conclusion that both parties
intended that Anglo-Asean Bank should signify its agreement and conformity to the
contractual arrangement between petitioner and respondent. The fact that Anglo-
Asean Bank did not give such consent rendered the agreement inoperative
considering that, as previously discussed, the consent of the debtor is needed in the
subrogation of a third person to the rights of a creditor.
In this petition, petitioner assails the ruling of the Court of Appeals that what
was entered into by the parties was a conventional subrogation of petitioners rights
as creditor of the Anglo-Asean Bank which necessarily requires the consent of the
latter. In support, petitioner alleges that: (1) the Memorandum of Agreement did not
create a new obligation and, as such, the same cannot be a conventional
subrogation; (2) the consent of Anglo-Asean Bank was not necessary for the validity
of the Memorandum of Agreement; (3) assuming that such consent was necessary,
respondent failed to secure the same as was incumbent upon him; and (4)
respondent himself admitted that the transaction was one of assignment of credit.
Petitioner argues that the parties to the Memorandum of Agreement could not
have intended the same to be a conventional subrogation considering that no new
obligation was created. According to petitioner, the obligation of Anglo-Asean Bank to
pay under Contract No. 00193 was not extinguished and in fact, it was the basic
intention of the parties to the Memorandum of Agreement to enforce the same
obligation of Anglo-Asean Bank under its contract with petitioner. Considering that
the old obligation of Anglo-Asean Bank under Contract No. 00193 was never
extinguished under the Memorandum of Agreement, it is contended that the same
could not be considered as a conventional subrogation.
We are not persuaded.
It is true that conventional subrogation has the effect of extinguishing the old
obligation and giving rise to a new one. However, the extinguishment of the old
obligation is the effect of the establishment of a contract for conventional
subrogation. It is not a requisite without which a contract for conventional
subrogation may not be created. As such, it is not determinative of whether or not a
contract of conventional subrogation was constituted.
Moreover, it is of no moment that the subject of the Memorandum of
Agreement was the collection of the obligation of Anglo-Asean Bank to petitioner
Licaros under Contract No. 00193. Precisely, if conventional subrogation had taken
place with the consent of Anglo-Asean Bank to effect a change in the person of its
creditor, there is necessarily created a new obligation whereby Anglo-Asean Bank
must now give payment to its new creditor, herein respondent.
Petitioner next argues that the consent or conformity of Anglo-Asean Bank is
not necessary to the validity of the Memorandum of Agreement as the evidence on
record allegedly shows that it was never the intention of the parties thereto to treat
the same as one of conventional subrogation. He claims that the preambulatory
clause requiring the express conformity of third parties, which admittedly was Anglo-
Asean Bank, is a mere surplusage which is not necessary to the validity of the
agreement.
As previously discussed, the intention of the parties to treat the Memorandum
of Agreement as embodying a conventional subrogation is shown not only by the
whereas clause but also by the signature space captioned WITH OUR CONFORME
reserved for the signature of a representative of Anglo-Asean Bank. These provisions
in the aforementioned Memorandum of Agreement may not simply be disregarded or
dismissed as superfluous.
It is a basic rule in the interpretation of contracts that (t)he various
stipulations of a contract shall be interpreted together, attributing to the doubtful
ones that sense which may result from all of them taken jointly. [if !supportFootnotes][15][endif]
Moreover, under our Rules of Court, it is mandated that (i)n the construction of an
instrument where there are several provisions or particulars, such a construction is, if
possible, to be adopted as will give effect to all.[if !supportFootnotes][16][endif] Further,
jurisprudence has laid down the rule that contracts should be so construed as to
harmonize and give effect to the different provisions thereof.[if !supportFootnotes][17][endif]
In the case at bench, the Memorandum of Agreement embodies certain
provisions that are consistent with either a conventional subrogation or assignment of
credit. It has not been shown that any clause or provision in the Memorandum of
Agreement is inconsistent or incompatible with a conventional subrogation. On the
other hand, the two cited provisions requiring consent of the debtor to the
memorandum is inconsistent with a contract of assignment of credit. Thus, if we were
to interpret the same as one of assignment of credit, then the aforementioned
stipulations regarding the consent of Anglo-Asean Bank would be rendered inutile and
useless considering that, as previously discussed, the consent of the debtor is not
necessary in an assignment of credit.
Petitioner next argues that assuming that the conformity of Anglo-Asean was
necessary to the validity of the Memorandum of Agreement, respondent only had
himself to blame for the failure to secure such conformity as was, allegedly,
incumbent upon him under the memorandum.
As to this argument regarding the party responsible for securing the
conformity of Anglo-Asean Bank, we fail to see how this question would have any
relevance on the outcome of this case. Having ruled that the consent of Anglo-Asean
was necessary for the validity of the Memorandum of Agreement, the determinative
fact is that such consent was not secured by either petitioner or respondent which
consequently resulted in the invalidity of the said memorandum.
With respect to the argument of petitioner that respondent himself allegedly
admitted in open court that an assignment of credit was intended, it is enough to say
that respondent apparently used the word assignment in his testimony in the general
sense. Respondent is not a lawyer and as such, he is not so well versed in law that
he would be able to distinguish between the concepts of conventional subrogation
and of assignment of credit. Moreover, even assuming that there was an admission
on his part, such admission is not conclusive on this court as the nature and
interpretation of the Memorandum of Agreement is a question of law which may not
be the subject of stipulations and admissions.[if !supportFootnotes][18][endif]
Considering the foregoing, it cannot then be said that the consent of the
debtor Anglo-Asean Bank is not necessary to the validity of the Memorandum of
Agreement. As above stated, the Memorandum of Agreement embodies a contract for
conventional subrogation and in such a case, the consent of the original parties and
the third person is required.[if !supportFootnotes][19][endif] The absence of such conformity by
Anglo-Asean Bank prevented the Memorandum of Agreement from becoming valid
and effective. Accordingly, the Court of Appeals did not err when it ruled that the
Memorandum of Agreement was never perfected.
Having arrived at the above conclusion, the Court finds no need to discuss the
other issues raised by petitioner.
WHEREFORE, the instant petition is DENIED and the Decision of the Court of
Appeals dated February 10, 2000 and its Resolution dated April 7, 2000 are hereby
AFFIRMED.

G.R. No. L-30442 September 30, 1983
HONORABLE CORNELIO BALMACEDA, now LEONIDES VIRATA, in his
capacity as Secretrary of Commerce and Industry, petitioner,
vs.
UNION CARBIDE PHILIPPINES, INC., HONORABLE FEDERICO C. ALIKPALA,
Presiding Judge, Branch XXII, Court of First Instance of Manila, respondents.
G.R. No. L-30409 September 30, 1983
HONORABLE MARCELO BALATBAT, in his capacity as Secretary of
Commerce and Industry, petitioner,
vs.
UNION CARBIDE PHILIPPINES, INC., respondent.
The Solicitor General for petitioner.
Gil R. Carlos for respondents.
FERNANDO, C.J.:
The question raised in this petition filed by the Solicitor General to review the
decision of then respondent Judge, the late Federico C. Alikpala declaring that private
respondent Union Carbide of the Philippines is not engaged in the retail business does
not pose any difficulty. The answer is supplied by the case of B. F. Goodrich
Philippines, Inc. v. Teofilo Reyes, Sr., 1 Goodyear Tire and Rubber Co. v. Teofilo
Reyes, Sr., 2 and Mobil Oil Philippines, Inc. v. Teofilo Reyes, Sr. 3 The doctrine therein
announced applying the Presidential Decree 4 amending the Retail Trade Act
directly in point. The decision calls for affirmance.
The amendatory Presidential Decree added two more paragraphs, the first of which
was the basis for the three previous decisions of this Court. The entire section 4 was
reproduced. The Section starts with an opening statement as to what the term "retail
business" shall mean, namely, 6 "occupation or calling of habitually selling direct to
the general public merchandise, commodities or goods for consumption." 6 It
excludes, according to the amendment, "(c) a manufacturer or processor selling to
the industrial and commercial users or consumers who use the products bought by
them to render service to the general public and/or produce or manufacture goods
which are in turn sold to them;... "7 The appealed decision, which is quite
comprehensive and scholarly, could be commended for in the main anticipating that
the above category should be excluded from "retail business." Thus: "In the field of
economics, in the area of marketing, the interpretation given by Government
agencies, and by common acceptation the term 'retail', is associated with and limited
to goods for personal, family or household use, consumption and utilization. This is
also in accord with the ruling of the Supreme Court in the Ichong case regarding the
nature and kind of goods a retailer handles. Under the situation, the Court is
persuaded to hold that the goods for consumption mentioned in Republic Act No.
1180 should be construed to refer to the final and end [uses] of a product which
directly satisfy human wants and desires and are needed for home and daily life.
Accordingly, the goods which petitioner's Industrial Products Division handle
(commonly referred to as intermediate goods), do not fall and cannot be classified as
consumption goods." 8
There was a need for such clarification. Private respondent has two divisions, the
Consumer Products Division and the Industrial Products Division. As to the former, it
effected its sales through retail outlets, dealers and distributors. Thus there was no
question as to the character of its business. It was not embraced in the category of
retail. As to the Industrial Products Division, its Agricultural Chemicals Department
sold its products through exclusive distributors. Again, it could be concluded that such
Department was not covered by the Act even before its amendment. The products
handled by the five other departments of the Industrial Products Division, namely,
the Metals and Carbide; Plastics; Industrial Chemicals; Linde, Haynes Stellite and
Carbon Products and Polyethylene Bags were generally sold to producers, processors,
fabricators and to industries. While these departments had a limited fixed clientele,
still there was no prohibition as to the general public malting similar purchases from
them. What removed these departments from the operation of the Retail Trade Act
was pointed out in the appealed decision in these words: "The goods handled by the
five remaining departments of petitioner's Industrial Products Division are generally
raw materials used in the manufacture of other goods, or if not, as one of the
component raw materials, or at the least as elements utilized in the process of
production or manufacturing." 9 After considering the statutory definition in the Retail
Trade Act itself, its definition by economists, and in judicial opinions, as well as the
view of former Central Bank Governor Cuaderno as to the adverse consequences in
terms of increased cost to consumers, loss of official assistance from producers,
elimination of much needed foreign capital and loss of technical assistance, the lower
court held it was not engaged in the retail business. The amendatory Decree removes
5 is
whatever doubt there could have been as to the correctness of the conclusion
reached by the lower court.
WHEREFORE, the Court affirms the lower court decision holding that Union Carbide
Philippines, Inc. is not engaged in the "retail business" as this term is defined in
Section 4 of Republic Act No. 1180 and malting permanent the restraining order of
June 22, 1964 issued in this case. No costs.

G.R. No. L-30063 July 2, 1983
THE GOODYEAR TIRE AND RUBBER CO. OF THE PHILIPPINES, LTD.,
petitioner-appellant,
vs.
THE HONORABLE TEOFILO REYES, SR., in his capacity as Acting Secretary
of Commerce and Industry, respondent-appellee, FIRESTONE TIRE &
RUBBER CO. OF THE PHILIPPINES, intervenor-appellant.
Siguion Reyna, Montecillo, Belo & Ongria Law Office for petitioner- appellant.
The Solicitor General for Acting Secretary of Commerce and Industry.
Ortigas & Ortigas Law Office for Firestone Tire & Rubber Co. of the Phils.
FERNANDO, C.J.:
In this appeal by both petitioners Goodyear Tire and Rubber Co. of the Philippines
and intervenor Firestone Tire and Rubber Co. of the Philippines, 1 the lower court
holding that as to certain customers, "proprietory planters, persons engaged in the
exploitation of natural resources," and "employees and officers of the petitioner,"
they are engaged in retail business, the legal question raised was set at rest by
Presidential Decree No. 714 2 amending the Retail Trade Nationalization Law which
took effect without presidential approval. 3 As originally worded, the term "retail
business" covers "any act, occupation or calling of habitually selling direct to the
general public merchandise, commodities or goods for consumption, but shall not
include: (a) a manufacturer, processor, laborer or worker selling to the general public
the products manufactured, processed or produced by him if his capital does not
exceed five thousand pesos, or (b) a farmer or agriculturist selling the product of his
farm."4 Under the aforesaid Presidential Decree, which took effect on May 28, 1975,
two more paragraphs were included. They are: "(c) a manufacturer or processor
selling to the industrial and commercial users or consumers who use the products
bought by them to render service to the general public and/or to produce or
manufacture goods which are in turn sold to them; (d) a hotel-owner or keeper
operating a restaurant irrespective of the amount of capital, provided that the
restaurant is necessarily included in, or incidental to, the hotel business." 5
Petitioner Goodyear Tire and Rubber Company of the Philippines as well as intervenor
Firestone Tire and Rubber Company of the Philippines, as noted in the decision now
on appeal, sold their rubber products to certain types or class of customers as
follows: "(a) The Government of the Republic of the Philippines and all its
instrumentalities and/or agencies, who use the Rubber Products to render essential
services to the country and to the general public. (b) Public utilities, such as bus
fleets, taxi fleets, jeepney fleets, freight lines, etc., and power and communications
companies, who use Rubber Products to render essential services to third parties and
the general public for compensation. (c) Agricultural enterprises, proprietary planters,
agricultural processing plants, and agricultural cooperatives, who use the Rubber
Products to perform essential services to third parties and to the general public for
valuable consideration and profit. (d) Logging, mining, and other entities and persons
engaged in the exploitation of natural resources. (e) Automotive assembly plants,
who buy the Rubber Products in bulk for use in the assembly of automotive
equipment, and who resell the same to third parties and to the general public without
alteration or change at a profit as the assembled automotive equipment and vehicles
are sold. (f) Industrial and Commercial enterprises, engaged in manufacturing and
sales of prime and essential commodities to third parties and the general public for a
profit, who buy the Rubber Products for use in their manufacturing and sales
operations. (g) Employees and officers of the petitioner-intervenor." 6
To repeat as to the above-named customers, the court a quo held that petitioner and
intervenor were not exempt from the provisions of Republic Act No. 1180, although
ruling in their favor insofar as the other customers were concerned, thus making
permanent the preliminary injunction issued. Respondent Acting Secretary of
Commerce and Industry likewise appealed.
As the facts in Goodrich are not dissimilar both as to the nature of the business and
the customers, a similar conclusion is indicated. This Court in that decision
categorically stated: "It is clear from the above that proprietary planters and persons
engaged in the exploration of natural resources are included within the aforesaid
amendment. The lower court decision, however, is in accordance with law insofar as
employees and officers of petitioner are concerned. As thus modified, the decision
calls for affirmance." 7 We do so again.
WHEREFORE, the lower court decision is affirmed declaring that petitioner and
intervenor are not engaged in retail business within the purview of Section 4 of
Republic Act No. 1180 and Presidential Decree No. 714, except as to its sales to its
employees and officers. The injunction issued is likewise made permanent but subject
to the above qualification. No costs.